EXHIBIT 10.32
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into by and among JAKKS
Pacific, Inc., a corporation organized under the law of the state of Delaware,
U.S. ("JAKKS Pacific"), and the shareholders of KIDZ BIZ LIMITED, a private
limited company organized under the laws of England ("Kidz Biz UK"), KIDZ BIZ
FAR EAST LIMITED, a Hong Kong private limited company ("Far East"), listed on
Schedule I (the "Shareholders"). Kidz Biz UK and Far East are sometimes
collectively referred to as the "Kidz Biz Companies". JAKKS Pacific and the
Shareholders are sometimes collectively referred to as the "Parties."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, JAKKS Pacific desires to purchase all of the outstanding
capital stock of the Kidz Biz Companies, all of which is owned by some or all of
the Shareholders, and the Shareholders desire to sell all such capital stock to
JAKKS Pacific on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the Parties hereto hereby agree as follows:
1. Certain Definitions.
1.1 "Pound Sterling" means English pounds.
1.2 "Acquisition" means the purchase of the Shares and the related
transactions contemplated by this Agreement and the other Acquisition Documents.
1.3 "Acquisition Documents" means this Agreement, the Agent Agreement,
and each agreement to be executed and delivered at the Closing pursuant to this
Agreement, including the Employment Agreement.
1.4 "Affiliate" of a Person means another Person directly or indirectly
controlling, controlled by, or under common control with, such Person; for this
purpose, "control" of a Person means the power (whether or not exercised) to
direct the policies, operations or activities of such Person by virtue of the
ownership of, or right to vote or direct the manner of voting of, securities of
such Person, or pursuant to agreement or Law or otherwise.
1.5 "Agent" means David Lipman, as agent of the Shareholders pursuant to
the Agent Agreement.
1.6 "Agent Agreement" means the Shareholders' Agent Agreement of even
date herewith among the Shareholders and the Agent.
1.7 "Agreement" means this Stock Purchase Agreement, as amended or
supplemented.
1.8 "Assets" means the assets of each of the Kidz Biz Companies, as the
context may require.
1.9 "Awareness" or "Knowledge" when used in this Agreement in reference
to any Shareholder refers to the actual awareness or knowledge of such
Shareholder as of the date of this Agreement, without further investigation and
without giving effect to imputed knowledge.
1.10 "Blue Sky Laws" means the laws of any state of the U.S., the
District of Columbia, or any territory or other jurisdiction in the U.S.
governing the purchase and/or sale of securities in such jurisdiction.
1.11 "Business" means the business operated by Kidz Biz UK or Far East
or both, as the context so requires, as of the date hereof and all products
designed, developed, marketed and otherwise dealt with and traded in by Kidz Biz
UK or Far East on and prior to the Closing Date and all business activities
incidental thereto.
1.12 "Claim" means any claims, demands, suits, damages, or causes of
action.
1.13 "Claim for Tax" means any letter, document, assessment or receipt
of any Tax Governmental Authority from which it appears that a Kidz Biz Company
may be placed under liability to any Tax.
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1.14 "Clockhouse Lease" refers to a lease by Kidz Biz UK of offices
located at The Clockhouse, 4 Dorking Road, Epsom, Surrey, England, in the form
of the draft provided to JAKKS Pacific by the Shareholders.
1.15 "Closing" means the closing of the Acquisition as provided in
Article 6.
1.16 "Closing Date" means the date of the Closing, which is also the
date of this Agreement.
1.17 "Closing Purchase Price" means the portion of the Purchase Price
payable or deliverable at the Closing consisting of US$6,400,000.00 in cash and
the JAKKS Pacific Shares, allocated between the Kidz Biz Companies as set forth
in Section 6.3.
1.18 "Commission" means the U.S. Securities and Exchange Commission.
1.19 "Common Stock" means the shares of common stock, par value $.001
per share, of JAKKS Pacific.
1.20 "Consent" means any material approval, authorization, consent or
ratification by or on behalf of any Person that is not a Party to this
Agreement, or any waiver of, or exemption or variance from, any Contract,
License Agreement or Order, the failure to obtain which would have a Material
Adverse Effect or would prohibit the Acquisition.
1.21 "Contract" means any material contract (including without
limitation any purchase, sale, supply or service order or agreement, equipment
lease, License Agreement or Lease) that relates to the Business or the Assets.
For the purposes hereof, a Contract is "material" if (a) it relates to a
transaction or series of transactions involving the expenditure or receipt by
either of the Kidz Biz Companies of an amount in excess of Pound Sterling25,000
(or the transfer of property with a fair market value in excess of Pound
Sterling25,000), (b) a breach or default thereunder would have a Material
Adverse Effect, or (c) it relates to any Trade Right or any transaction not in
the ordinary course of business.
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1.22 "David Lipman" means David Lipman, one of the Shareholders.
1.23 "Disclosure Schedules" means the disclosure schedules attached to
this Agreement.
1.24 "Dividends" means any dividends, dividend equivalents, bonuses or
other distributions paid or payable by either of the Kidz Biz Companies to the
Shareholders on or after October 1, 2001 through and up to (and including) the
Closing Date (other than base salaries paid in the ordinary course consistent
with past practice).
1.25 "Dragon Ball Z Claims" refers to any Claim by AB Toys, SNC, a
company incorporated in France, against Kidz Biz UK under a Distribution
Agreement dated December 5, 2000 between AB Toys, SNC, as licensor and Kidz Biz
UK, as licensee.
1.26 "Earn-Out" means that portion of the Purchase Price payable under
certain conditions pursuant to Section 2.3.
1.27 "Earn-Out Payment" means the payment, if any, to be satisfied by
the issue of the Earn-Out Shares to the Shareholders and to be determined
pursuant to Section 2.3 in respect of any Earn-Out Year.
1.28 "Earn-Out Payment Date" means a date on which any portion of the
Earn-Out is to be satisfied by the issue of the Earn-Out Shares pursuant to
Section 2.3.
1.29 "Earn-Out Shares" means the new Common Stock to be issued to
satisfy any Earn-Out Payment.
1.30 "Earn-Out Year" means each of calendar year 2002, 2003, 2004 and
2005.
1.31 "Employment Agreement" means the employment agreement entered into
at the Closing between Kidz Biz UK and David Lipman.
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1.32 "Escrowee" means Feder, Kaszovitz, Isaacson, Weber, Skala, Bass &
Rhine LLP, counsel to JAKKS Pacific or any substitute escrow agent appointed
pursuant to Section 2.4.
1.33 "Far East Shares" means the shares of HK$1.00 each of Far East.
1.34 "Financial Claim" refers to any Claim by JAKKS Pacific against any
or all of the Shareholders for breach of the representations and warranties
contained in Sections 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11 and 4.12 of this
Agreement.
1.35 "Financial Statements" means the UK Financial Statements, the HK
Financial Statements and the Management Accounts.
1.36 "Governmental Authority" means any U.S., English, Hong Kong or
other U.S. federal, U.S. state or U.S. or other local government or governmental
authority, agency or instrumentality, or any court or arbitration panel of
competent jurisdiction, or any recognized professional or industry association
or organization which establishes policies or standards or otherwise regulates
or supervises services and activities related to the Business or the Assets.
1.37 "Hazardous Material" means any contaminant, pollutant or toxic or
hazardous waste, effluent or other substance or material, including without
limitation any radioactive, explosive, flammable, corrosive or infectious
substance or material, or any substance or material containing asbestos,
polychlorinated biphenyls or urea formaldehyde or which is otherwise subject to
any Law, License or Order relating to the protection of the environment or human
health or safety.
1.38 "HK Financial Statements" has the meaning given in Section 4.6.
1.39 "Holdback" means the aggregate sum of US$1,000,000.00 for the
Dragon Ball Z Claims, and any Financial Claims.
1.40 "Holdback Claim" refers to any Dragon Ball Z Claim and any
Financial Claim.
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1.41 "Holdback Period" means the period expiring on the date (i) ten
(10) business days following the resolution of the Dragon Ball Z Claims, and
(ii) ten (10) business days following the resolution of any Financial Claim by
the dispute resolution procedures set forth in Section 7.5 or, in respect of any
portion of the Holdback for Financial Claims against which no Financial Claim is
made, the second anniversary of Closing, provided, however that the Holdback
Period with respect to the Dragon Ball Z Claims and the Financial Claims shall
terminate on the later of the date that is two (2) years and six (6) months
following the date hereof and the date when any dispute among the Parties
regarding indemnification for any such Claim is resolved.
1.42 "Hong Kong Lease" means a Lease for a term commencing July 10, 2000
between Hornbrook Investment, Ltd. as landlord and Far East as Tenant, a true
and correct copy of which has been delivered by the Shareholders of Far East to
JAKKS Pacific.
1.43 "JAKKS Pacific Shares" means 308,992 shares of new Common Stock
issued as the Common Stock portion of the Closing Purchase Price.
1.44 "JAKKS Pacific Securities Claims" has the meaning given in the
Registration Rights Agreement.
1.45 "John Nimmo" means John Nimmo, one of the Shareholders.
1.46 "Kidz Biz Accountants" means, when referring to Kidz Biz UK, Morgan
Brown & Spofforth, Chartered Accountants and Registered Auditors, Surrey,
England, and, when referring to Far East, David Ho & Company, Hong Kong.
1.47 "Kidz Biz Sales" means:
(a) in any period ending prior to the Closing Date, the sales of
the Kidz Biz Companies in such period, and
(b) in any period ending on or after the Closing Date, the sales of
the Kidz Biz Companies including, without limitation, for this purpose sales of
any products produced or sold by
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JAKKS Pacific (or any Affiliate thereof) using properties, including without
limitation, Trade Rights, acquired by JAKKS Pacific (or such Affiliate) in the
Acquisition in such period, determined on a "stand alone" basis in accordance
with the accounting principles and practices consistently applied in the
determination of the Kidz Biz Companies' sales by the relevant Kidz Biz Company
and the relevant Kidz Biz Accountants prior to the Closing, as reflected in the
relevant Kidz Biz Company's regularly prepared statements of operations,
including those included in the relevant Kidz Biz Company's audited 1999 and
2000 Financial Statements.
1.48 "Kidz Biz Shares" means the Ordinary Shares and the Far East
Shares.
1.49 "Law" means any statute, rule, regulation or ordinance of any
Governmental Authority.
1.50 "Lease" means a lease pursuant to which either of the Kidz Biz
Companies is a lessee of any Real Property.
1.51 "License Agreement" means a license, royalty or other Contract
pursuant to which either of the Kidz Biz Companies has the right to use or
exploit any Trade Right of another Person.
1.52 "Lien" means any security interest, conditional sale or other title
retention agreement, mortgage, pledge, lien, charge, encumbrance or other
adverse claim or interest other than, in any case,as may arise in the ordinary
course of business.
1.53 "Limitations" means the limitations set out in Section 8.4.
1.54 "Management Accounts" means the Management Accounts of each of the
Kidz Biz Companies for the period from December 31, 2000 to September 30, 2001
(copies of which are annexed to the Disclosure Schedules).
1.55 "Marilyn Lipman" means Marilyn Lipman, one of the Shareholders.
1.56 "Material Adverse Effect" means a material adverse effect on the
Business or the Assets.
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1.57 "Notice" means giving any notice to, or making any declaration or
filing, or registration or recordation, with any Person.
1.58 "Order" means any judgment, order, writ, decree, award, directive,
ruling or decision of any Governmental Authority.
1.59 "Ordinary Shares" means the ordinary shares of Pound Sterling1 each
of Kidz Biz UK.
1.60 "Payment Factor" means the percentage amounts set forth in Schedule
I for allocation of the Purchase Price among the Shareholders.
1.61 "Percentage Y/O/Y Increase" has the meaning given in Section 2.3.
1.62 "Permit" means any permit, license, certification, qualification,
franchise or privilege issued or granted by any Governmental Authority.
1.63 "Person" includes without limitation a natural person, corporation,
joint stock company, limited liability company, partnership, joint venture,
association, trust, Governmental Authority, or any group of the foregoing acting
in concert.
1.64 "Proceeding" means any action, suit, arbitration, audit,
investigation or other proceeding, at law or in equity, before or by any
Governmental Authority (other than any routine audit of any Tax Authority).
1.65 "Purchase Price" means the aggregate of the Closing Purchase Price,
increased by the Earn-Out.
1.66 "Real Property" means any real property subject to a Lease.
1.67 "Registration Rights Agreement" means an agreement among JAKKS
Pacific and the Shareholders providing for Registration of the JAKKS Pacific
Shares delivered at the Closing and the Earn-Out Shares.
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1.68 "Securities Act" means the U.S. Securities Act of 1933, as amended.
1.69 "Share Certificates" means the certificates representing the JAKKS
Pacific Shares, which shall bear the following legend:
Any transfer or other disposition of the shares represented by this
certificate is subject to the provisions of a Stock Purchase Agreement
among JAKKS Pacific, Inc. (the "Corporation") and the individual
shareholders of Kidz Biz Limited and Kidz Biz Far East Limited. The
shares of stock represented by this Certificate have not been registered
under the United States Securities Act of 1933, as amended (the "Act"),
and may be transferred only if (i) registered under the Act and the
requirements of any state having jurisdiction are complied with or (ii)
the transfer is exempt from such registration and state requirements and
counsel reasonably acceptable to the Corporation has delivered to
the Corporation a written opinion reasonably acceptable to the
Corporation setting forth the basis for such exemption.
1.70 "Shareholder" means each Person listed on Schedule I, constituting
all of the shareholders of record of the Kidz Biz Companies.
1.71 "Shareholder Securities Claims" has the meaning given in the
Registration Rights Agreement.
1.72 "Storage Facility Agreement" means the agreement between Kidz Biz
UK and Euro Pressing Services Ltd (EUROP) of Leicester, for use by Kidz Biz UK
of a warehouse facility at 16-20 Euston Street, Freemens Common, Ayleston Road,
Leicester LE2 7SS, England.
1.73 "Tax" means any income, excise, import, sales, property,
withholding, social security or franchise tax or duty, and any interest, penalty
or fine due thereon or with respect thereto of the U.S. (federal, state or
local), United Kingdom or Hong Kong, or any other jurisdiction, as the context
may require.
1.74 "Tax Authority" means any U.S., English or Hong Kong governmental
authority, whether local, state or federal, or any agency of such authority
which is competent to charge, impose or collect any Tax.
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1.75 "Tax Claim" refers to any claim by any Tax Authority against Kidz
Biz UK for Tax in respect of income, profits, or gains made by Kidz Biz UK
before the Closing.
1.76 "Trade Right" means a patent, claim of copyright, trademark, trade
name, brand name, service mark, logo, symbol, trade dress or design, or
representation or expression of any thereof, or registration or application for
registration thereof, or any other invention, trade secret, technical
information, know-how, proprietary right or intellectual property.
1.77 "UK Financial Statements" has the meaning given in Section 4.6.4.6.
1.78 "U.S." means the United States of America.
1.79 "US$" means U.S. dollars.
2. Purchase of the Kidz Biz Shares.
2.1 Transfer of Shares. Each Shareholder agrees to sell with full title
guarantee and JAKKS Pacific agrees to buy at the Closing the Ordinary Shares
owned by such Shareholder and each right attached to the Ordinary Shares at or
after the date of this Agreement, free of any encumbrances, and each Shareholder
agrees to sell, assign, transfer and deliver to JAKKS Pacific agrees to buy at
the Closing the Far East Shares owned by such Shareholder free and clear of any
liens, claims or encumbrances.
2.2 Delivery of Closing Purchase Price. At the Closing, JAKKS Pacific is
delivering the Closing Purchase Price to the Shareholders in proportion to their
respective Payment Factors in accordance with payment instructions given by the
Shareholders to JAKKS Pacific.
2.3 Earn-Out. In addition to the Closing Purchase Price, JAKKS Pacific
shall pay the Earn-Out to the Agent in the form of Common Stock for the benefit
and account of the several Shareholders in the amount and payable in the manner
and upon the terms and conditions set forth below:
(a) The Earn-Out for each Earn-Out Year shall be determined by the
increase, if any, in Kidz Biz Sales for such Earn-Out Year over the prior year's
Kidz Biz Sales, expressed as a percentage
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of the prior year's Kidz Biz Sales (the "Percentage Y/O/Y Increase"), and shall
be earned and payable as follows:
(i) if the Percentage Y/O/Y Increase is less than or equal to
five (5%) percent, there will be no Earn-out Payment for the Earn-Out Year;
(ii) if the Percentage Y/O/Y Increase is greater than five (5%)
percent but less than or equal to ten (10%) percent, the Earn-out Payment for
such Earn-Out Year will equal the number of shares of Common Stock equal to the
product of (i) a fraction the numerator of which is five (5%) percent and the
denominator of which is the excess of the Percentage Y/O/Y Increase over five
(5%) percent and (ii) 25,749 shares of Common Stock; and
(iii) if the Percentage Y/O/Y Increase is greater than ten (10%)
percent, the Earn-out Payment for such Earn-Out Year will be 25,749 shares of
Common Stock.
(b) The Earn-Out Shares, if any, for each Earn-Out Year shall be
delivered as soon as practicable, but in any event not later than sixty (60)
days, after the end of such Earn-Out Year.
(c) On each Earn-Out Payment Date, JAKKS Pacific shall pay the
Earn-Out, if any, for the applicable Earn-Out Year to the Agent (for the benefit
and account of the several Shareholders) in the manner provided in a Notice
given to JAKKS Pacific pursuant to Section 3.2 or, if no such Notice is given,
by delivering share certificates for the Earn-Out Shares in the names of each
Shareholder to the Agent, each certificate to be for the same proportion of the
Earn-Out Shares for that Earn-Out Year as the proportion of Earn-Out Shares
received by such Shareholder in payment of the last preceding Earn-Out Payment,
or if no preceding Earn-Out Payment has then been made, for the same proportion
of the Earn-Out Shares as the proportion of the JAKKS Pacific Shares received by
such Shareholder on Closing.
(d) In the event that JAKKS Pacific ceases to control Kidz Biz UK or
Far East and David Lipman's employment is terminated without "cause" by Kidz Biz
UK or by David Lipman for "good reason" (as such terms are used in the
Employment Agreement) prior to the end of the term of the Employment Agreement,
JAKKS Pacific shall within ten (10)business days thereafter deliver to the Agent
for the benefit and account of the Shareholders 25,749 shares of Common Stock in
respect of the
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then current Earn-Out Year in which such events occur in full satisfaction of
the Earn-Out obligation for such Earn-Out Year, and 25,749 shares of Common
Stock in respect of each Earn-Out Year thereafter, such delivery to occur within
thirty (30) days after the end of the relevant subsequent Earn-Out Year, if any,
provided, however, that if such termination occurs after the third anniversary
of the Closing under this Agreement, the number of shares of Common Stock
thereafter deliverable on account of the Earn-Out shall equal the average number
of shares of Common Stock delivered in satisfaction of the Earn-Out obligation,
if any, during the Earn-Out Years ending prior to such termination.
2.4 Holdback.
(a) At the Closing, cash in an aggregate amount equal to the
Holdback shall be held in escrow by the Escrowee in accordance with this Section
2.4. In the event that any Holdback Claim arises during the relevant Holdback
Period following Closing, JAKKS Pacific shall promptly give the Agent notice
after its receipt of written notice of the Holdback Claim, and JAKKS Pacific
may, subject to the following requirements of this Section 2.4, instruct the
Escrowee to release an amount equal to the amount asserted in the Holdback Claim
(not to exceed US$500,000.00 with respect to the Dragon Ball Z Claim and not to
exceed $500,000 with respect to the Financial Claims, subject to the other
limitations contained in Section 8.4 of this Agreement), and if no specific
amount is asserted, then an amount reasonably estimated by JAKKS Pacific not to
exceed the foregoing limitations, and the Escrowee shall comply with such
instructions. JAKKS Pacific shall use good faith efforts to consult with the
Agent with respect to the resolution of a Holdback Claim. Prior to giving notice
to the Escrowee to effect a release of any amount from escrow, JAKKS Pacific
shall give a written notice (the "Release Notice") to the Agent that it is to
proposing to notify the Escrowee to effect a release of funds, specifying in
reasonable detail (i) the amount of the Holdback Claim which JAKKS Pacific
claims to be entitled to pursuant to this Section 2.4 (or, if not readily
calculable, a reasonable estimate of the amount of such Holdback Claim), (ii)
the basis of the Holdback Claim and (iii) the date on which such release shall
be effected (which date shall not be less than ten (10) days after the date that
such written notice is given to the Agent (such ten (10) day period is referred
to herein as the "Release Notice Period")).
(b) In the case of a Financial Claim if, prior to the expiration of
the Release Notice Period, the Agent shall notify JAKKS Pacific in writing of an
intention to dispute the Financial Claim, the parties hereto shall, for a period
of ten (10) business days, attempt to resolve such dispute and JAKKS
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Pacific shall be prohibited from giving notice to the Escrowee to effect such
release during such period. If the Agent and JAKKS Pacific, each acting
reasonably, are unable to resolve such dispute within such period, no funds
shall be released by Escrowee until receipt by Escrowee of joint written
instructions signed by Agent and JAKKS Pacific or the issuance of a final,
non-appealable order of instruction by a court of competent jurisdiction. If (x)
the Agent does not so notify JAKKS Pacific of an intention to dispute the
Financial Claim prior to the expiration of the Release Notice Period, (y) joint
instructions are so received regarding the Release Notice, or (z) a court of
competent jurisdiction shall issue such an order providing that JAKKS Pacific is
entitled to the Financial Claim, then JAKKS Pacific shall be entitled to give
notice to the Escrowee to effect a release of funds in accordance with this
Section 2.4.
(c) The Parties agree that the Agent shall use good faith efforts to
resolve the Dragon Ball Z Claim in a manner reasonably acceptable to the Agent
and JAKKS Pacific within six (6) months after the date hereof. If the Dragon
Ball Z Claim is not resolved within such six (6) month period, then JAKKS
Pacific shall be entitled to resolve the Dragon Ball Z Claim on such terms as it
deems acceptable ( using reasonable business judgment), and shall be entitled to
withdraw the amount by which it resolves such Claim (by settlement or
litigation) from the funds held in escrow by the Escrowee by giving the Release
Notice and following the procedure described in paragraph (a) of this Section
2.4. In attempting to resolve the Dragon Ball Z Claim, the Agent and JAKKS
Pacific shall consult with one another.
(d) The Holdback shall be deposited in an interest bearing account
and the interest paid thereon shall be paid to Agent semi-annually.
(e) At the end of any Holdback Period, the balance of the Holdback
remaining in escrow with respect to the category of Holdback Claims as to which
the Holdback Period has expired shall be released to the Agent with all interest
paid thereon for distribution among the Shareholders.
(f) Following the Closing, upon request of any of the Parties, the
Shareholders and JAKKS Pacific shall cooperate with one another in good faith to
promptly select an independent third party institution acceptable to the
Parties, such as a bank, to act as the escrow agent under this paragraph, and
the fees of such substitute escrow agent shall be paid by JAKKS Pacific.
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2.5 Escrowee Obligations. The Escrowee shall perform only the duties
expressly set forth herein and in Section 2.5, and shall refer to this Agreement
in performing its duties hereunder. The Escrowee may rely upon, and shall be
protected in acting, or refraining from acting upon, any written notice,
instruction or request furnished to it hereunder and believed by it to be
genuine and to have been signed or presented by the proper party or parties. The
Escrowee shall not be liable for any action taken by it hereunder except for the
Escrowee's gross negligence or willful misconduct. The Parties shall indemnify
the Escrowee and hold it harmless against any loss, liability or expense
incurred without bad faith or gross negligence on its part, arising out of or in
connection with this Agreement, including the costs and expenses incurred in
defending any such claim of liability. The Escrowee may consult with its own
counsel, and shall have full and complete authorization and protection for any
action taken or suffered in good faith and in accordance with the opinion of
such counsel. The Escrowee may resign at any time by giving thirty (30) days'
prior written notice of such resignation to the Parties. Thereafter, the
Escrowee shall have no further obligation hereunder except to hold the funds
delivered to it as depositary. In such event, the Escrowee shall not take any
action until the Parties have designated a successor Escrowee. The Parties
together may terminate the appointment of the Escrowee hereunder upon notice
specifying, the date upon which such termination shall take effect. In the event
of such termination, the Parties shall, within thirty (30) days after notice
from the Escrowee, jointly appoint a successor Escrowee. Upon appointment of a
successor Escrowee, the Escrowee shall turn over the funds held by it to such
successor Escrowee and shall thereafter have no further obligations hereunder.
JAKKS Pacific shall pay the compensation of the Escrowee for the Escrowee's
services hereunder and all expenses, disbursements and advances (including
reasonable attorneys' fees) incurred in carrying out the Escrowee's duties
hereunder. The Shareholders acknowledge that the Escrowee has acted as counsel
to JAKKS Pacific in the preparation, negotiation and conclusion of this
Agreement and the transactions related to the Acquisition, and hereby consent to
the Escrowee representing its and their Affiliates in any proceeding arising out
of any dispute under this Agreement, any of the transactions or agreements
contemplated by this Agreement.
2.6 Effective Date. The Parties acknowledge that JAKKS Pacific will for
its Tax and financial statement purposes treat the Acquisition of the Shares to
have taken effect on October 1, 2001.
3. The Agent.
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3.1 Notices to Agent. Any Party hereto may rely upon any Notice given by
the Agent on behalf of any Shareholder with respect to any election,
determination or other action to be made or taken by him hereunder as the act
and deed of such Shareholder. It shall be sufficient to deliver to the Agent at
his address set forth in Section 12.4 below any payment, Notice or other
document to be delivered hereunder to any Shareholder and it shall be the sole
responsibility of the Agent to disburse any funds or deliver any Notice or other
document so delivered to him in such manner as he and the Shareholders, or any
of them, may agree.
3.2 Directions from Agent. The Agent may specify the manner of payment
of the Purchase Price, and the account or Person to which such payment is to be
made, by giving to JAKKS Pacific at least two business days prior to an Earn-Out
Payment Date, a written Notice setting forth instructions for the manner in
which payment of the Earn-Out is to be made.
3.3 Authority of Agent. Each election, determination or other action of
the Agent in connection with this Agreement shall be binding upon all of the
Shareholders, and no Shareholder shall have any right to object, dissent from,
or protest or otherwise contest the same or take any separate action relating to
the same.
3.4 Payments to Agent. Any delivery or payment to be made hereunder to
or for the account of any Shareholder that is made to the Agent as herein
provided shall constitute, as between JAKKS Pacific and the Shareholders,
payment and delivery in full of the amount thereof. It shall be the sole
responsibility of the Agent to hold for the account of the Shareholders and to
disburse to them the JAKKS Pacific Shares and any funds JAKKS Pacific may pay or
deliver to it pursuant hereto.
4. Representations and Warranties of Kidz Biz and the Shareholders.
The Shareholders, severally but not jointly, except as to David Lipman
and Marilyn Lipman, whose obligations shall be joint and several, hereby
represent and warrant to JAKKS Pacific as follows, subject to and except for the
matters disclosed on the Disclosure Schedules (each Shareholder makes such
representation and warranty as to the corporation of which he or she is a
Shareholder):
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4.1 Kidz Biz UK Existence; Shareholders. Kidz Biz UK is a private
limited company duly organized and validly existing under the Laws of England
and Wales and has been in continuous existence since its incorporation and has
full power and authority to own its Assets and carry on its Business as and in
the places where such Assets are now owned or such Business is now being
conducted. Complete and correct copies of Kidz Biz UK's Articles of Association,
including all amendments thereto, and Kidz Biz UK's Memorandum of Association,
including all amendments thereto, have been delivered to JAKKS Pacific. The only
share capital that Kidz Biz UK is authorized to issue consists of 25,000
Ordinary Shares. Except as set forth on Schedule I, such Shareholder owns
beneficially and of record all of the Ordinary Shares set forth opposite such
Shareholder's name on Schedule I, free and clear of all Liens or any restriction
with respect to the voting or disposition thereof (other than restrictions of
general applicability imposed by applicable securities Laws), and such Ordinary
Shares constitute in the aggregate all of the Ordinary Shares. All of the
Ordinary Shares are duly authorized, validly issued and fully paid. None of the
share capital of Kidz Biz UK is reserved for issuance and there are no
agreements, commitments or arrangements providing for the issuance or sale of
any thereof, or any issued or outstanding options, warrants or other rights to
purchase, or securities or instruments convertible into or exchangeable for, any
share capital of Kidz Biz UK.
4.2 Far East Existence; Shareholders. Far East is a private limited
liability company duly organized, validly existing and under the Laws of Hong
Kong and has full power and authority to own its Assets and carry on its
Business as and in the places where such Assets are now owned or such Business
is now being conducted. Complete and correct copies of Far East's Articles of
Association, including all amendments thereto, and Far East's Memorandum of
Association, including all amendments thereto, have been delivered to JAKKS
Pacific. The authorized capital stock of Far East is HK$10,000 divided into
10,000 ordinary shares of HK$1.00 each, 1,000 of which shares have been issued
and are fully paid up. Except as set forth on Schedule I, such Shareholder owns
beneficially and of record all of the Far East Shares set forth opposite such
Shareholder's name on Schedule I, free and clear of all Liens or any restriction
with respect to the voting or disposition thereof (other than restrictions of
general applicability imposed by applicable securities Laws), and such Far East
Shares constitute in the aggregate all of the issued share capital of Far East.
All of such Far East Shares are duly authorized and validly issued. No shares of
capital stock of Far East are reserved for issuance and there are no agreements,
commitments or arrangements providing for the issuance or sale of any thereof,
or any issued or outstanding options, warrants or other rights to purchase, or
securities or instruments convertible into or exchangeable for, any capital
stock of Far East.
16
4.3 Power and Authority. Each Shareholder (as to himself or herself) has
the legal capacity, power and authority, to execute and deliver this Agreement
and each Acquisition Document to which he or she is a party and to assume and
perform his or her respective obligations hereunder and thereunder. This
Agreement has been, and each other Acquisition Document to which he or she is a
party will be, duly executed and delivered by such Shareholder. No Consent of,
or Notice to, any Person is required as to any Shareholder in connection with
its execution and delivery of this Agreement or any other Acquisition Document
to which he or she is a party, or the performance of his or her obligations
hereunder or thereunder.
4.4 Proceedings.
(a) Except as set forth on the Disclosure Schedules, so far as such
Shareholder of Kidz Biz UK is aware, no Proceeding is pending or, to the best of
his/her knowledge, threatened against or affecting the Business, the Assets or
the operations of Kidz Biz UK in which an unfavorable Order would have a
Material Adverse Effect, or prohibit, invalidate, or make unlawful, in whole or
in part, the Acquisition, this Agreement or any other Acquisition Document, or
the carrying out of the provisions hereof or thereof. Except as set forth on
Schedule 4.4, so far as such Shareholder is aware, Kidz Biz UK is not in default
in respect of any Order, nor is there any Order enjoining either of Kidz Biz UK
or any Shareholder of Kidz Biz UK in respect of, or the effect of which is to
prohibit or curtail the Kidz Biz UK's or any such Shareholder's performance of,
its obligations hereunder or thereunder.
(b) Except as set forth on the Disclosure Schedules, so far as such
Shareholder of Far East is aware, no Proceeding is pending or, to the best of
their knowledge, threatened against or affecting the Business, the Assets or the
operations of Far East in which an unfavorable Order would have a Material
Adverse Effect, or prohibit, invalidate, or make unlawful, in whole or in part,
the Acquisition, this Agreement or any other Acquisition Document, or the
carrying out of the provisions hereof or thereof. Except as set forth on
Schedule 4.4, so far as such Shareholder of Far East is aware, Far East is not
in default in respect of any Order, nor is there any Order enjoining either of
Far East or any Shareholder of Far East in respect of, or the effect of which is
to prohibit or curtail Far East's or any such Shareholder's performance of, its
obligations hereunder or thereunder.
4.5 Financial Statements.
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Except as set forth on the Disclosure Schedules:
(a) UK Financial Statements.
(i) Kidz Biz UK's audited financial statements comprising the
balance sheet, profit and loss account and cash flow statement of Kidz Biz UK
together with the notes thereon (collectively, the "UK Financial Statements"),
for the financial year ended on December 31, 2000:
(1) show a true and fair view of the:
(A) state of affairs of Kidz Biz UK as at December 31,
2000, and
(B) the results of Kidz Biz UK for the financial year
ended on December 31, 2000.
(2) have been prepared and audited in accordance with the
standards, principles and practices specified in of the UK Financial Statements
applied on a consistent basis and subject thereto in accordance with the law and
applicable standards, principles and practices generally accepted in the United
Kingdom consistently applied; and
(3) have been prepared on a basis consistent with the basis
upon which all audited Financial Statements of Kidz Biz UK have been prepared in
respect of the three years ended December 31, 2000.
(ii) Kidz Biz UK owns all of its material Assets free and clear
of all Liens, except as disclosed in the UK Financial Statements, its Management
Accounts or any Disclosure Schedule . (iii) The Management Accounts of Kidz Biz
UK have been prepared on a basis consistent with the UK Financial Statements and
are reasonably accurate in all material respects, and (in light of the purpose
for which they were prepared) give a fair view of the state of affairs of Kidz
Biz UK for the period from January 1, 2001 through September 30, 2001.
(b) HK Financial Statements.
(i) Far East's audited financial statements comprising the
balance sheet, profit and loss account and cash flow statement of Far East
together with the notes thereon, (collectively, the "HK Financial
Statements")for the financial Year ended on December 31, 2000:
(1) show a true and fair view of the
(A) state of affairs of Far East as at December 31,
2000, and
18
(B) the results of Far East for the financial year
ended on December 31, 2000;
(2) have been prepared and audited in accordance with the
standards, principles and practices specified in the HK Financial Statements
applied on a consistent basis and subject thereto in accordance with the law and
applicable standards, principles and practices generally accepted in the HKSAR
consistently applied; and
(3) have been prepared on a basis consistent with the
basis upon which all audited Financial Statements of Far East have been prepared
in respect of the three years ended December 31, 2000.
(ii) Far East owns all of its material Assets free and clear of
all Liens, except as disclosed in the HK Financial Statements, its Management
Accounts or any Disclosure Schedule.
(iii) The Management Accounts of Far East have been prepared on
a basis consistent with the HK Financial Statements and are reasonably accurate
in all material respects, and (in light of the purpose for which they were
prepared) give a fair view of the state of affairs of Far East for the period
from January 1, 2001 through September 30, 2001.
4.6 Material Adverse Changes.
(a) Except as set forth on the Disclosure Schedules or specifically
disclosed elsewhere herein, so far as such Shareholder of Kidz Biz UK is aware,
since September 30, 2001 there has not been any material adverse change in the
Business or the Assets of Kidz Biz UK or Kidz Biz UK's financial condition.
(b) Except as set forth on the Disclosure Schedules or specifically
disclosed elsewhere herein, so far as each Shareholder of Far East is aware,
since September 30, 2001 there has not been any material adverse change in the
Business or the Assets of Far East or Far East's financial condition.
19
4.7 Trade Rights.
(a) Except as set forth on the Disclosure Schedules, so far as such
Shareholder of Kidz Biz UK is aware, no Trade Right of Kidz Biz UK conflicts
with or infringes on, and, so far as such Shareholder of Kidz Biz UK is aware,
there has been no misappropriation or unauthorized use by Kidz Biz UK of, any
Trade Right of any other Person.
(b) Except as set forth on the Disclosure Schedules, so far as such
Shareholder of Far East is aware, no Trade Right of Far East conflicts with or
infringes on, and, so far as such Shareholder of Far East is aware, there has
been no misappropriation or unauthorized use by Far East of, any Trade Right of
any other Person.
4.8 Real Property.
Except as disclosed on the Disclosure Schedules:
(a) Kidz Biz UK does not own, lease, use or occupy any real property
except the lease of the Real Property subject to the Clockhouse Lease and use of
the Storage Facility Agreement. Kidz Biz UK does not sublease any Real Property.
(b) Far East does not own, lease, use or occupy any real property
except the lease of the Real Property subject to the Hong Kong Lease. Far East
does not sublease any Real Property.
4.9 Hazardous Material.
(a) So far as such Shareholder of Kidz Biz UK is aware, no Hazardous
Material has been generated, used, stored, released or disposed of at, or
transported to or from, the Real Property leased by Kidz Biz UK or in connection
with the Business of Kidz Biz UK, and no Law, Permit, Order or Proceeding
applicable to Kidz Biz UK or its Assets requires any clean-up or remediation or
participation in or contribution to any such clean-up or remediation.
(b) So far as such Shareholder of Far East is are aware, no
Hazardous Material has been generated, used, stored, released or disposed of at,
or transported to or from, the Real Property leased by Far East or in connection
with the Business of Far East, and no Law, Permit, Order or
20
Proceeding applicable to Far East or its Assets requires any clean-up or
remediation or participation in or contribution to any such clean-up or
remediation.
4.10 Tax Returns. Except as disclosed on the Disclosure Schedules, each
of the Kidz Biz Companies has duly filed all Tax and information returns and
reports required to have been filed by it, each of which is complete and correct
in all material respects. Except as disclosed on the Disclosure Statements, each
of the Kidz Biz Companies has paid all Taxes due to any Governmental Authority
required to have been paid by it and has created sufficient reserves or made
provision for all Taxes accrued but not yet due and payable by it. Except as
disclosed in the Disclosure Schedules, each of the Kidz Biz Companies has paid
to the proper Governmental Authorities all customs, duties and similar or
related charges required to be paid by it with respect to the importation of
goods into the United Kingdom. Except as disclosed on the Disclosure Schedules,
no Governmental Authority is now asserting or, to the best of their knowledge,
threatening to assert any deficiency or assessment for additional Tax Claims,
nor, to the best of their knowledge, is there any basis for any such deficiency
or assessment. Except as disclosed on the Disclosure Schedules, so far as each
Shareholder is aware, neither of the Kidz Biz Companies has been audited by any
Governmental Authority with respect to any fiscal year ending at any time in the
three-year period prior to Closing and, so far as each Shareholder is aware, no
other such audit has been threatened or proposed. Neither of the Kidz Biz
Companies has waived or consented to any tolling of any limitation period with
respect to any Tax liability. The Kidz Biz Companies have delivered to JAKKS
Pacific complete and correct copies of the Tax returns of the Kidz Biz Companies
for each of their respective ended fiscal years ended December 31, 1998, 1999
and 2000.
4.11 Employees.
(a) The Disclosure Schedules include a complete and correct list of
the names and current annual salary, bonus and commission for each current
employee of Kidz Biz UK. Except as set forth on Schedule 4.11-A, so far as such
Shareholder of Far East is aware, no employee listed thereon intends to
terminate his or her employment relationship with Kidz Biz UK.
(b) The Disclosure Schedules include a complete and correct list of
the names and current annual salary, bonus and commission for each current
employee of Far East. Except as set forth on Schedule 4.11-B, so far as each
Shareholder of Kid Biz HK is aware, no employee listed thereon intends to
terminate his or her employment relationship with Far East.
21
4.12 Excess Dividends. The Kidz Biz Companies have not paid Dividends
in excess of Pound Sterling 112,000 in the aggregate since September 30, 2001.
4.13 Affiliates.
(a) Except as set forth in the UK Financial Statements or the
Disclosure Schedules, no Shareholder and no Affiliate of the Kidz Biz UK or any
Shareholder of either of the Kidz Biz Companies or any relative, associate or
agent of any of them has any interest in any property of Kidz Biz UK, including
without limitation any Contract for the furnishing of services by, or rental of
real or personal property from or to, or requiring payments to, any such
Shareholder or such Affiliate. Except as set forth in the UK Financial
Statements or the Disclosure Schedules, no Shareholder or Affiliate of any
Shareholder of any of the Kidz Biz Companies holds any indebtedness of or has
any Claim against Kid Biz UK.
(b) Except as set forth in the HK Financial Statements or the
Disclosure Schedules, no Shareholder and no Affiliate of Far East or any
Shareholder of either of Far East or any relative, associate or agent of any of
them has any interest in any property of Far East, including without limitation
any Contract for the furnishing of services by, or rental of real or personal
property from or to, or requiring payments to, any such Shareholder or such
Affiliate. Except as set forth in the HK Financial Statements or the Disclosure
Schedules, no Shareholder or Affiliate of any Shareholder of any of the Kidz Biz
Companies holds any indebtedness of or has any Claim against Far East.
4.14 Brokers.
(a) Neither Kidz Biz UK nor such Shareholder of Kidz Biz UK has
employed or engaged any Person to act as a broker, finder or other intermediary
in connection with the Acquisition, and (b) no Person is entitled to any fee,
commission or other compensation relating to any such employment or engagement
by Kidz Biz UK or such Shareholder of Kidz Biz UK.
(b) Neither Far East nor such Shareholder of Far East has employed
or engaged any Person to act as a broker, finder or other intermediary in
connection with the Acquisition, and (b) no
22
Person is entitled to any fee, commission or other compensation relating to any
such employment or engagement by Far East or such Shareholder of Far East.
23
4.15 Investment Representation. Each Shareholder represents and warrants
that he or she will be acquiring the JAKKS Pacific Shares for investment
purposes only and not with a view to distribution thereof, and recognizes that
any sale, pledge or other disposition of such shares is limited by the
provisions of the Securities Act, and the regulations issued thereunder, and
other applicable securities laws and Blue Sky Laws.
4.16 Agent's Appointment. Such Shareholder has duly appointed the Agent
to act as such Shareholder's agent and attorney-in-fact with respect to the
Acquisition in accordance with the Agent Agreement, a correct and complete copy
of which has been heretofore delivered to JAKKS Pacific, and has duly authorized
the Agent to take any action necessary in connection with (i) the implementation
of this Agreement on behalf of such Shareholder, (ii) the waiver of any
condition to the obligations of such Shareholder to close the Acquisition, or
(iii) the compromise or settlement of any dispute hereunder, all as more fully
set forth therein.
4.17 Limitation of Warranties. JAKKS Pacific acknowledges that in making
its determination as to the propriety of the transactions contemplated by this
Agreement, it has relied solely on the representations and warranties of the
Shareholders expressly contained in Section 4 of this Agreement. EXCEPT AS
EXPRESSLY SET FORTH IN SECTION 4, THE SHAREHOLDERS MAKE NO EXPRESS OR IMPLIED
WARRANTY OF ANY KIND WHATSOEVER, INCLUDING ANY REPRESENTATION AS TO PHYSICAL
CONDITION OR VALUE OF ANY OF THE ASSETS OF THE KIDZ BIZ COMPANIES OR THE FUTURE
PROFITABILITY OR FUTURE EARNINGS PERFORMANCE OF THE KIDZ BIZ COMPANIES. ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE
EXPRESSLY EXCLUDED.
5. Representations and Warranties of JAKKS Pacific.
JAKKS Pacific hereby represents and warrants and the Shareholders as
follows:
5.1 JAKKS Pacific Good Standing. JAKKS Pacific is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
has full power and authority to own its assets and carry on its business as and
in the places where such assets are now owned or such business is
24
now being conducted. Complete and correct copies of JAKKS Pacific's Certificate
of Incorporation, including all amendments thereto, and Bylaws, including all
amendments thereto, have been delivered to the Shareholders.
5.2 Power and Authority. Each of JAKKS Pacific has full corporate power
and authority to execute and deliver this Agreement and each other Acquisition
Document to which it is a party and to assume and perform its obligations
hereunder and thereunder. The execution and delivery by JAKKS Pacific of this
Agreement and each other Acquisition Document to which it is a party and the
performance of its obligations hereunder and thereunder have been duly
authorized by all requisite corporate action on its part. This Agreement has
been, and each other Acquisition Document to which it is a party will be, duly
executed and delivered by JAKKS Pacific, and this Agreement is, and each other
Acquisition Document to which it is a party, when so executed and delivered,
will be, a legally valid and binding obligation of JAKKS Pacific, enforceable
against it in accordance with its terms, subject to (a) bankruptcy, insolvency,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to creditors' rights generally, and (b) equitable principles limiting
the availability of specific performance, injunctive relief and other equitable
remedies. The execution and delivery of this Agreement does not, and the
execution and delivery of each other Acquisition Document and the performance by
JAKKS Pacific of its obligations hereunder and thereunder will not, violate any
provision of its Certificate of Incorporation or Bylaws. No Consent of, or
Notice to, any Person is required as to JAKKS Pacific in connection with its
execution and delivery of this Agreement or any other Acquisition Document to
which it is a party, or the performance of its obligations hereunder or
thereunder. The approval of the shareholders of JAKKS Pacific for JAKKS Pacific
to execute this Agreement or consummate the transactions contemplated hereby is
not required.
5.3 JAKKS Pacific Shares. The JAKKS Pacific Shares have been duly
authorized and validly issued, and are fully paid and non-assessable, and free
and clear of any liabilities, liens, security interests, pledges or encumbrances
of any nature whatsoever, and the Earn-Out Shares shall be duly authorized and
validly issued, and are fully paid and non-assessable, and free and clear of any
liabilities, liens, security interests, pledges or encumbrances of any nature
whatsoever, except in any such case as may be created by the Shareholders and
except as the sale, pledge or other disposition thereof is limited by the
provisions of the Securities Act and other applicable US or English securities
laws and Blue Sky
25
Laws. JAKKS Pacific shall keep available at all times sufficient authorized but
unissued Common Stock as may be necessary for issuance of the Earn-Out Shares.
5.4 Brokers. Neither JAKKS Pacific nor JAKKS Pacific has employed or
engaged any Person to act as a broker, finder or other intermediary in
connection with the Acquisition, and no Person is entitled to any fee,
commission or other compensation relating to any such employment or engagement
by JAKKS Pacific.
5.5 Proceedings. No Proceeding is pending, or, to the best of JAKKS
Pacific's or JAKKS Pacific's knowledge, threatened against or affecting its
business, assets, operations or financial or other condition in which an
unfavorable Order would have a material adverse effect on JAKKS Pacific's
business or assets or prohibit, invalidate, or make unlawful, in whole or in
part, the Acquisition, this Agreement or any other Acquisition Document, or the
carrying out of the provisions hereof or thereof. Neither JAKKS Pacific nor
JAKKS Pacific is in default in respect of any Order nor is there any Order
enjoining it in respect of, or the effect of which is to prohibit or curtail its
performance of, its obligations hereunder or thereunder.
5.6 No Material Adverse Change. So far as JAKKS Pacific is aware, since
September 30, 2001 there has not been any material adverse change in JAKKS
Pacific's financial condition.
5.7 Eligibility for Form S-3. JAKKS Pacific meets, and shall use its
best efforts to continue to meet, the requirements for the use of Form S-3 for
registration or re-sale by the Shareholders of the JAKKS Pacific Shares and the
Earn-Out Shares for their own account and not as an "underwriter" as such term
is defined in the Securities Act, and JAKKS Pacific shall use its best efforts
to file all reports required to be filed by JAKKS Pacific with the Commission in
a timely fashion so as to maintain such eligibility for the use of Form S-3.
5.8 Limitation of JAKKS Pacific's and JAKKS Pacific's Warranties. Each
of the Shareholders acknowledges that in making their determination as to the
propriety of the transactions contemplated by this Agreement, they have relied
solely on the representations and warranties of JAKKS Pacific expressly
contained in Section 5 of this Agreement and on the documents (including
financial statements, proxy statements, and annual reports) filed by JAKKS
Pacific with the Commission.
26
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5, JAKKS Pacific MAKE NO EXPRESS OR
IMPLIED WARRANTY OF ANY KIND WHATSOEVER, INCLUDING ANY REPRESENTATION AS TO THE
FUTURE PROFITABILITY OR FUTURE EARNINGS PERFORMANCE OF JAKKS PACIFIC OR ANY OF
THEIR AFFILIATES. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
6. Closing.
6.1 Concurrent Closing. The Closing is being held concurrently with the
execution of this Agreement. The execution and/or delivery of each document to
be executed and/or delivered at the Closing and each other action to be taken at
the Closing shall be deemed to be executed and/or delivered or taken, as the
case may be, simultaneously.
6.2 Deliveries by Shareholders. At the Closing, the Shareholders shall
deliver to JAKKS Pacific:
(a) transfers in common form relating to all the Ordinary Shares
duly executed in favor of JAKKS Pacific (or as it may direct);
(b) instruments of transfer and bought and sold notes relating to
all the Far East Shares duly executed by the Shareholders in favor of JAKKS
Pacific and or in the name(s) of any other person(s) or nominee(s) that JAKKS
Pacific may direct;
(c) share certificates relating to the Ordinary Shares or lost share
certificate indemnities therefor in the agreed terms;
(d) share certificates relating to the Far East Shares or lost share
certificate indemnities therefor in the agreed terms;
(e) the resignations, effective at the Closing, of all of Kidz Biz
Companies' directors immediately prior to the Closing; and
27
(f) Evidence satisfactory to JAKKS Pacific and its counsel that at
or prior to the Closing (and prior to the taking effect of the resignations of
the directors referred to in clause 6.2(d) above) the Shareholders of Kidz Biz
UK shall have procured the passing of board resolutions of Kidz Biz UK:
(i) sanctioning for registration (subject to due stamping which
shall be paid by JAKKS Pacific) the transfers in respect of the Ordinary Shares;
(ii) appointing such persons as JAKKS Pacific may specify to be
the directors and secretary of Kidz Biz UK;
(iii) revoking all mandates to bankers and giving authority in
favor of such persons as JAKKS Pacific may nominate to operate the bank accounts
thereof;
(iv) resolving that Kidz Biz UK enters into the Employment
Agreement with David S. Lipman;
(g) Evidence satisfactory to JAKKS Pacific and its counsel that at
or prior to the Closing (and prior to the taking effect of the resignations of
the directors referred to in clause 6.2(e) above) the Shareholders of Far East
shall have procured the passing of board resolutions of Kidz Biz HK:
(i) sanctioning for registration (subject where necessary to due
stamping) the transfers in respect of the Far East Shares;
(ii) appointing such persons as JAKKS Pacific may specify to be
the directors and secretary of Far East;
(iii) revoking all mandates to bankers and giving authority in
favor of such persons as JAKKS Pacific may nominate to operate the bank accounts
thereof.
6.3 Deliveries by JAKKS Pacific. At the Closing:
(a) JAKKS Pacific shall deliver to the Shareholders of Kidz Biz UK,
in the original principal amount of US$1,408,000.00 cash, less US$220,000.00 as
part of the Holdback, which portion of the Holdback shall be delivered to the
Escrowee, and 67,979 JAKKS Pacific Shares; and
28
(b) JAKKS Pacific shall deliver to the Shareholders of Far East,
US$4,992,000.00 cash less US$780,000.00 as part of the Holdback, which portion
of the Holdback shall be delivered to the Escrowee, and 241,013 JAKKS Pacific
Shares.
(c) JAKKS Pacific shall deliver to the Shareholders evidence
satisfactory to the Shareholders and their counsel of the approval by the board
of JAKKS Pacific of entry into this Agreement and the other Acquisition
Documents.
6.4 At the Closing Kidz Biz UK and David Lipman shall each execute and
deliver to the other the Employment Agreement and Kidz Biz UK.
7. Additional Covenants.
7.1 Restrictive Covenants. From and after the Closing Date and until
December 31, 2004, no Shareholder of either of the Kidz Biz Companies shall,
directly or indirectly through any Affiliate or other intermediary (a) engage in
the Business conducted by the Kidz Biz Companies, or serve as a partner, member,
manager, director, an officer or employee of, or consultant or advisor to, or in
any manner own, control, manage, operate or otherwise participate or invest in,
or be connected with (in each case, other than (i) except as does not directly
relate to the Business and (ii) David Lipman under the Employment Agreement or
Marilyn Lipman or John Nimmo as employees of either of the Kid Biz Companies as
provided in Section 7.7 below), any Person that engages in the Business
conducted by the Kidz Biz Companies, or authorize the use of its name in
connection therewith within the geographic area in which Kidz Biz Companies
conducted their respective businesses at the date hereof, or (b) for itself or
on behalf of any other Person, other than in response to a general solicitation
or advertisement, employ, engage or retain any Person who at any time during the
preceding twelve (12) month period shall have been an employee of either of the
Kidz Biz Companies, or contact any supplier, customer or employee of either of
the Kidz Biz Companies for the purpose of soliciting or diverting any such
supplier, customer or employee from Kidz Biz UK or Far East. The foregoing
provisions notwithstanding, any Shareholder may invest his funds in securities
of an issuer if the securities of such issuer are listed for trading on a
registered securities exchange or actively traded in the over-the-counter market
and the Shareholders' aggregate holdings therein represent less than 5% of the
total number of shares or principal amount of the securities of such issuer then
outstanding. The Shareholders acknowledge that the provisions of this
29
Section, and the period of time, geographic area and scope and type of
restrictions on their activities set forth herein, are reasonable and necessary
for the protection of JAKKS Pacific and are an essential inducement to JAKKS
Pacific entering into this Agreement.
7.2 Confidentiality. Except as otherwise provided in this Section 7.2,
from and after the Closing Date, the Shareholders shall keep absolutely
confidential all confidential or proprietary information on the Closing Date
relating to the Kidz Biz Companies, including without limitation all of Kidz Biz
Companies' Trade Rights, product information, customer and supplier lists,
marketing and sales data, personnel and financing and Tax matters. The
Shareholders acknowledge that the confidentiality of all such information is
absolutely essential to the operation of the Business. No Shareholder shall, at
any time after the date hereof, use or disclose to any Person any such
information, without JAKKS Pacific's prior written consent, except as may be
required by Law or an Order (in which case, where reasonably feasible, such
Shareholder shall promptly give notice to JAKKS Pacific of any demand, subpoena,
Order or legal process requiring disclosure so that JAKKS Pacific may oppose
such disclosure or seek a protective Order or other confidential treatment of
such information), unless such Shareholder can demonstrate that such information
(i) has become, at any time after the Closing Date, generally available in the
public domain or (ii) was already known to a Person to whom he discloses such
information other than, in either case, through the disclosure of such
information in violation of any confidentiality obligation to or for the benefit
of JAKKS Pacific or either of the Kidz Biz Companies.
7.3 Non-Disparagement. No Party hereto shall, at any time after the date
hereof, directly or indirectly disparage or demean, or make, encourage, support
or concur in any statement (written or oral) which disparages or demeans in any
manner, whether for a commercial purpose or otherwise, any other Party hereto or
any Affiliate thereof, or any stockholder, director, officer, employee or agent
of any of them; provided that no provision of this Section 7.3 shall be
construed to prohibit or restrict any statement by any Person made in
furtherance or defense of any Material Adverse Effect or in the course of any
Proceeding or the resolution of any dispute pursuant to Section 7.5.
7.4 Operation of Kidz Biz Business.
(a) JAKKS Pacific shall cause the Kidz Biz Companies to, and the
Kidz Biz Companies shall, operate the Business throughout the balance of 2001
and the Earn-Out Years in a
30
manner consistent with JAKKS Pacific's customary business practices and
policies, and JAKKS Pacific shall procure that neither of the Kidz Biz Companies
shall take any action for the purpose of reducing the Earn-Out or limiting or
adversely affecting the ability of the Shareholders to achieve the financial
conditions for the Earn-Out under Section 2.3. JAKKS Pacific shall not, during
the Earn-Out Years, unreasonably require that the Business be operated
substantially differently from how the Business was operated prior to the
Closing Date.
(b) JAKKS Pacific and Kidz Biz shall maintain complete and correct
records relating to the determination of the Earn-Out, and shall permit the
Shareholders and their authorized representatives, from time to time during
normal business hours and upon reasonable prior written Notice, to examine and
to audit such records (including ledgers, work papers and other relevant
documents and information) in order to confirm JAKKS Pacific's and Kidz Biz's
compliance with the provisions of this Section 7.4 and to verify the Earn-Out
for any Earn-Out Year. JAKKS Pacific and Kidz Biz shall cooperate with such
examination and make available appropriate financial and accounting personnel to
respond to inquiries relating thereto. Any information so disclosed to any
Shareholder or his authorized representative shall be subject to the
confidentiality restrictions of Section 7.2; provided that no provision of
Section 7.2 shall be constructed to prohibit or restrict any statement by any
Person made in furtherance or defense of any Material Adverse Effect or in the
course of any Proceeding or the resolution of any dispute pursuant to Section
7.5.
(c) Promptly following the Closing, Kidz Biz UK shall enter into the
Clockhouse Lease, subject to approval by JAKKS Pacific, which will not be
unreasonably withheld provided that JAKKS Pacific is reasonably satisfied that
the rental rate is commercially fair on an arms-length basis to Kidz Biz UK, and
JAKKS Pacific shall enter into a guarantee of Kidz Biz UK's obligations under
the Clockhouse Lease, such guarantee to be in the agreed terms.
7.5 Resolution of Financial Disputes. If JAKKS Pacific, the Agent and
the Shareholders, or any of them, at any time, disagree with the determination
of any amount made or certified by another Party hereto, including the Earn-Out
for any Earn-Out Year, such Party shall, within forty-five (45) days of delivery
of such determination or certificate, give written Notice (the "Dispute Notice")
to the other
31
Parties to such effect, setting forth therein any change proposed by it and, in
reasonable detail, its objections to such determination and the reasons for such
change. In such event, unless the Parties involved promptly, and, in any event,
within thirty (30) days of the giving of the Dispute Notice, resolve all such
objections and agree upon the determination of the amount in dispute, the
determination thereof shall be promptly referred to its regular independent
certified public accountants, who shall confer and attempt to resolve the
objections as to such determination set forth in or arising as a consequence of
the Dispute Notice. If, within thirty (30) days of such referral, such
accountants resolve such dispute and determine the amount, they shall give
Notices to the Parties involved to such effect, setting forth therein the amount
as so determined and the basis therefor, and such determination shall be final
and binding on the Parties involved. If such accountants do not make such
determination within such thirty (30) day period, the Parties involved shall
refer such dispute to a mutually agreeable internationally-recognized accounting
firm that is "independent" with respect to the Parties hereto (the "Neutral
Accountants"). Unless the Neutral Accountants expressly determine otherwise,
each of the Parties involved shall submit to the Neutral Accountants (a) within
ten (10) days of the engagement thereof, and in such form and manner as they may
prescribe, a statement setting forth such Party's position with respect to each
of the objections or other issues set forth in or arising as a consequence of
the Dispute Notice, together with any exhibits or other supporting documents
relating thereto, and send a copy thereof to each other Party involved, and (b)
within ten (10) days thereafter, and in such form and manner as the Neutral
Accountants may prescribe, a rebuttal statement responding to the initial
statement of each other Party, together with any exhibits or other supporting
documents relating thereto, and send a copy thereof to each other Party
involved. The Neutral Accountants shall conduct a hearing, if all the Parties
involved so request in its statements, and may conduct a hearing, whether or not
any (but fewer than all) the Parties involved so request, if the Neutral
Accountants reasonably deem it necessary for the performance of their
engagement; provided that any such hearing shall be held only upon reasonable
prior written Notice to all Parties involved and only if all such Parties have
an opportunity to appear and present evidence at such hearing. The Neutral
Accountants may require any Party hereto (whether or not a party to the dispute)
to submit or produce additional statements, documents or information, to appear
and testify at any hearing or other proceeding, or otherwise to produce tangible
or oral evidence to the extent such Neutral Accountants reasonably deem
necessary or appropriate for them to determine the amount in dispute. Based on
such submissions and the evidence presented at any hearing, the Neutral
Accountants shall resolve all obligations and other issues set forth in or
arising as a consequence of the Dispute Notice and determine the amount in
dispute, and give Notice to the Parties involved, setting forth therein such
32
amount and the basis of determination thereof, such determination to be final
and binding on the Parties involved. Upon the determination of the amount, any
payment or adjustment based thereon shall be promptly made in the manner
provided herein. The fees and expenses of a Party's independent certified public
accountants incurred in the determination of such amount as provided herein
shall be separately borne by such Party. The fees and expenses of the Neutral
Accountants incurred, if required pursuant to this Section 7.5, shall be borne
and promptly paid equally by JAKKS Pacific, on the one hand, and the
Shareholders, on the other.
7.6 Tax & Financial Matters; Books and Records. After the Closing, JAKKS
Pacific shall procure that the Kidz Biz Companies shall:
(a) prepare and file all English or Hong Kong Tax returns or reports
of the Kidz Biz Companies for any period ending on or before the Closing Date
which shall not have been filed prior to the Closing Date; provided, however,
that at least ten (10) days prior to the proposed date of filing thereof, JAKKS
Pacific shall deliver a copy thereof to the Shareholders, who may review the
same and, if he or she so desires, have a reasonable opportunity to make
inquiries or discuss the same with appropriate personnel designated by JAKKS
Pacific, and JAKKS Pacific shall procure that the Kid Biz Companies make any
revision thereto requested by the Agent which may affect the interests of any
Shareholder and is reasonably acceptable to JAKKS Pacific; it being further
agreed that for such Tax and financial statement purposes the Acquisition of the
Shares shall be deemed to have taken effect on October 1, 2001;
(b) not make any amendment to any Tax return or report of the Kidz
Biz Companies filed prior to the Closing Date without the prior written consent
of the Agent, if such amendment would result in a material liability to any
Shareholder, unless at least thirty (30) days prior to the filing thereof, JAKKS
Pacific gives to the Agent written Notice of such amendment, including a copy
thereof, and either such Notice is accompanied by a certificate of JAKKS
Pacific's Chief Financial Officer to the effect that such amendment is required
to be filed by applicable Law or the Agent fails to deliver to JAKKS Pacific
within fifteen (15) days of his receipt of the Notice of such amendment a
written Notice objecting to such amendment, setting forth therein in reasonable
detail the basis for such objection, the changes, if any, he asserts are
required to be made therein and appropriate indemnification of JAKKS Pacific
with respect to any Tax it may incur by reason of such change, in which latter
case, JAKKS Pacific and the Agent shall
33
promptly confer and attempt to resolve such objections or, if they fail to
promptly do so, submit such dispute for resolution in accordance with Section
7.5;
(c) not agree to any extension or tolling of any statute of
limitations under any applicable Tax Law with respect to any matter for which
any Shareholder may have any liability, without the prior written consent of
such Shareholder; and
(d) maintain, until the seventh anniversary of the Closing Date, all
accounting ledgers, books and records of the Kidz Biz Companies with respect to
the periods ending on or before the Closing Date and permit any Shareholder
reasonable access thereto in connection with the preparation of financial
reports, Tax returns, Tax audits or the defense or prosecution of any
Proceeding.
Any information so delivered to the Agent or any Shareholder pursuant to this
Section 7.6 shall be subject to the confidentiality restrictions of Section 7.2.
7.7 Employment of Marilyn Lipman and John Nimmo . For a period of six
(6) months following the Closing, each of Marilyn Lipman and John Nimmo shall
continue to be employed by Kidz Biz UK to perform such duties as were
respectively performed by each of them prior to the Closing (or such other
duties as may be reasonably assigned to them by Kidz Biz UK which are not
inconsistent with the duties and responsibilities performed by them prior to
Closing), at salaries of Pound Sterling10,000 per annum; provided that the
maximum period of time that each of them shall be required to make available and
spend to carry out such duties will be limited to 16 hours per week.
7.8 Shareholders' Guarantees of Kidz Biz Companies Obligations. JAKKS
Pacific shall procure that as soon as reasonably practicable after Closing that
the Shareholders shall be released from all guarantees and indemnities given by
them or any of them or their Affiliates (other than under this Agreement) in
respect of the obligations and liabilities of the Kidz Biz Companies and,
pending such release, JAKKS Pacific shall with effect from the date hereof
indemnify the Shareholders and keep each of them fully and effectively
indemnified from and against all liabilities in connection therewith.
8. Indemnification.
34
8.1 Shareholders' Indemnity. Each Shareholder, severally but not jointly
(except for David Lipman and Marilyn Lipman, whose liability shall be joint and
several), shall indemnify and defend JAKKS Pacific and, after the Closing, each
director and officer of JAKKS Pacific, and hold each of them harmless from, any
loss, liability, obligation, damage or expense (including reasonable attorneys'
fees and disbursements) which any of them may suffer or incur incidental to any
Material Adverse Effect or any Proceeding against any of them arising out of,
based upon or resulting from:
(a) the failure of any representation or warranty made by that
Shareholder herein or in any Acquisition Document delivered to JAKKS Pacific in
connection herewith to be true in all material respects on the date hereof;
provided, however, that in the case of a failure of any of the representations
and warranties contained in Section 4, only the Shareholder whose representation
and warranty was inaccurate or breached shall have an obligation of
indemnification under this Article 8; and further provided, however, that
notwithstanding the foregoing, the obligations of David Lipman and Marilyn
Lipman shall be joint and several;
(b) that Shareholder's failure, in all material respects, to perform
or to comply with any covenant or condition required hereunder to be performed
or complied with by that Shareholder.
8.2 JAKKS Pacific's Indemnity.
(a) JAKKS Pacific shall indemnify and defend each Shareholder
against, and hold each of them harmless from, any loss, liability, obligation,
damage or expense (including reasonable attorneys' fees and disbursements) which
any of them may suffer or incur incidental to any Material Adverse Effect or any
Proceeding against any of them arising out of, based upon or resulting from:
(i) the failure of any representation or warranty made by JAKKS
Pacific herein or in any Acquisition Document delivered to that Shareholder in
connection herewith to be true in all material respects on the date hereof and
on the Closing Date;
(ii) JAKKS Pacific's failure, in all material respects, to
perform or to comply with any covenant or condition required hereunder to be
performed or complied with by JAKKS Pacific.
35
(b) In addition to the foregoing provisions of Section 8.2(a), JAKKS
Pacific and the Successor Company (if any, as such term is defined below) shall
jointly and severally indemnify and hold each Shareholder harmless, on a net of
Tax basis, for any additional United Kingdom capital gains tax liability
incurred by the Shareholder as a consequence of any loss of taper relief
suffered by the Shareholder as a consequence of any of the following enumerated
acts events or omissions carried out by JAKKS Pacific or the Successor Company
or any of their Affiliates or their subsidiaries or holding companies or
subsidiaries of such holding companies voluntarily after Closing consisting of:
(i) anything which causes the employment and/or directorship of
any Shareholder with Kidz Biz UK to cease in circumstances or as a consequence
of circumstances which amount to a breach of contract by Kidz Biz UK;
(ii) anything which causes either or both of the Kidz Biz
Companies to cease to be a subsidiary or subsidiaries of JAKKS Pacific or the
Successor Company;
(iii) anything which causes JAKKS Pacific or the Successor
Company to cease to be a trading company or the holding company of a trading
group;
(iv) anything which causes JAKKS Pacific or the Successor
Company to become owned or controlled either directly or indirectly by five or
fewer persons (and their Affiliates) or by its directors; and
(v) a re-organization or re-construction of the share capital of
JAKKS Pacific or the Successor Company on a previous application of section
8.2.(v) (2) (if any) except in circumstances where the shares ("new shares")
replacing the Common Stock of JAKKS Pacific or the shares of such other company
are either:
(1) new shares in JAKKS Pacific or the other company; or
(2) new shares in a company (the "Successor Company") which
is or immediately becomes a holding company of JAKKS Pacific or the other
company
As an example of the operation of the foregoing provisions, a transfer by JAKKS
Pacific of the shares of one or both of the Kidz Biz Companies to a wholly owned
subsidiary of JAKKS Pacific would not be an event described above that could
result in the loss of taper relief by a Shareholder.
The indemnification obligations set out in this Section 8.2(b) shall
terminate with respect to any loss of taper relief suffered by a Shareholder (i)
on December 31, 2002 as to the JAKKS Pacific Shares, and (ii) on December 31,
2003 as to the any Earn-Out Shares, and the maximum amount of JAKKS Pacific's
liability for all Claims under this Section 8.2(b) shall not exceed
US$600,000.00.
36
8.3 Claims Procedure. Promptly after Notice to an indemnified party of
any Material Adverse Effect or the commencement of any Proceeding by a third
party involving any loss, liability, obligation, damage or expense referred to
in Section 8.1 or 8.2, such indemnified party shall, if a Material Adverse
Effect for indemnification in respect thereof is to be made against an
indemnifying party, give written Notice to the latter of the commencement of
such Material Adverse Effect or Proceeding, setting forth in reasonable detail
the nature thereof and the basis upon which such party seeks indemnification
hereunder; provided that the failure of any indemnified party to give such
Notice shall not relieve the indemnifying party of its obligations under such
Section, except to the extent that the indemnifying party is actually prejudiced
by the failure to give such Notice. In case any such Proceeding is brought
against an indemnified party, and provided that proper Notice is duly given, the
indemnifying party shall assume and control the defense thereof insofar as such
Proceeding involves any loss, liability, obligation, damage or expense in
respect of which indemnification may be sought hereunder, with counsel selected
by the indemnifying party (and reasonably satisfactory to such indemnified
party), and, after Notice from the indemnifying party to such indemnified party
of its assumption of the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof (but
the indemnified party shall have the right, but not the obligation, to
participate at its own cost and expense in such defense by counsel of its own
choice) or for any amounts paid or foregone by the indemnified party as a result
of the settlement or compromise thereof (without the written consent of the
indemnifying party), except that, if both the indemnifying party and the
indemnified party are named as parties or subject to such Proceeding and either
such party reasonably determines with advice of counsel that a material conflict
of interest between such parties may exist in respect of such Proceeding, the
indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after Notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses, including without limitation
reasonable attorneys' fees and disbursements incurred by the indemnified party
in such defense; provided, however, that the indemnifying party shall not be
liable for such expenses on account of more than one separate firm of attorneys
(and, if necessary, local counsel) at any time representing such indemnified
party in connection with any Proceeding or separate Proceedings in the same
jurisdiction arising out of or based upon substantially the same allegations or
circumstances. If the indemnifying party shall assume the
37
defense of any such Proceeding, the indemnified party shall cooperate fully with
the indemnifying party and shall appear and give testimony, produce documents
and other tangible evidence, allow the indemnifying party access to the books
and records of the indemnified party and otherwise assist the indemnifying party
in conducting such defense. No indemnifying party shall, without the consent of
the indemnified party, which consent shall not be unreasonably withheld, consent
to entry of any judgment or enter into any settlement or compromise which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such Material Adverse Effect or Proceeding. Provided that proper Notice is
duly given, if the indemnifying party shall fail promptly and diligently to
assume the defense thereof, if and in the manner required hereunder, the
indemnified party may respond to, contest and defend against such Proceeding
(but the indemnifying party shall have the right to participate at its own cost
and expense in such defense by counsel of its own choice) and may make in good
faith any compromise or settlement with respect thereto, and recover the entire
cost and expense thereof, including, without limitation, reasonable attorneys'
fees and disbursements and all amounts paid or foregone as a result of such
Proceeding, or the settlement or compromise thereof, from the indemnifying
party. Any indemnification required to be made hereunder shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills or invoices are received or loss, liability,
obligation, damage or expense is actually suffered or incurred. This Section 8.3
is subject to the provisions of Section 8.5 in respect of any Claim for Tax.
8.4 Limitations. Any other provision hereof notwithstanding:
(i) no indemnifying party shall be required to indemnify any
Person unless and until the aggregate amount of loss, liability, obligation,
damage or expense as to which indemnification would be required from all the
Shareholders, collectively, under Section 8.1(a), or JAKKS Pacific, under
Section 8.2(a), as the case may be, but for the provisions of this Section 8.4,
exceeds US$50,000, and thereafter the indemnifying party shall be required, in
the manner and to the extent otherwise provided in this Article, to indemnify
any Person and to pay all amounts otherwise required to be paid by the
indemnifying party to the extent of the entire loss, liability, obligation,
damage or expense suffered or incurred by such Person; the foregoing
notwithstanding, JAKKS Pacific's Securities Claims, Shareholder Securities
Claims, any Material Adverse Effect for indemnification based upon a breach of
the representations and warranties made in the last four sentences of Sections
4.1 and 4.2 (including, without limitation, the shareholders of the Kidz Biz
Companies as set forth on Schedule I), all
38
of Section 4.3 and any Dragon Ball Z Claim shall not be subject to, or included
in calculating, the limitations contained in this clause 8.4(i);
(ii) the aggregate amount required to be paid under Section
8.1(a) pursuant to this Article 8 for any Claims for indemnification under this
Agreement (including, but not limited to Claims based upon a breach of the
representations and warranties made in the last four sentences of Sections 4.1
and 4.2, all of Section 4.3, the Dragon Ball Z Claims, Financial Claims, and any
of the other provisions of Section 4) by David Lipman and Marilyn Lipman in the
aggregate shall not exceed US$6,000,000.00 with respect to all Claims for
indemnification, and (ii) by John Nimmo in the aggregate shall not exceed
US$6,000,000.00 with respect to all Claims for indemnification.
(iii) the aggregate amount required to be paid under Section 8.2
pursuant to this Article 8 by JAKKS Pacific shall not exceed US$12,000,000.00
with respect to all Claims for indemnification;
(iv) the amount to be paid by David Lipman and Marilyn Lipman on
the one hand and John Nimmo on the other hand shall not exceed (i) US$250,000.00
in aggregate with respect to the Dragon Ball Z Claims, and (ii) US$250,000.00 in
aggregate with respect to the Financial Claims;
(v) the indemnification obligations provided herein shall
terminate with respect to any Material Adverse Effect for indemnification
arising under Section 8.1(a) or Section 8.2(a) that is not made prior to the
second anniversary of the Closing Date, except that any Claim under the last
four sentences of Section 4.1 and Section 4.2, or arising under Section 8.1(b)
or Section 8.2(b), or for Securities Claims under the Registration Rights
Agreement shall not be so limited under this Section and shall terminate in
accordance with the statute of limitations of applicable Law, and the obligation
to indemnify for the Holdback Claims shall terminate with respect to any
Holdback Claim that is not made during the Holdback Period;
(vi) if JAKKS Pacific is entitled to receive indemnification
from any of the Shareholders pursuant to Section 8.1 or pursuant to the
Registration Rights Agreement, JAKKS Pacific may, upon thirty (30) days prior
written Notice to the Agent, offset and retain the amount thereof from any
payment of the Earn-Out otherwise payable hereunder to that Shareholder;
39
(vii) no indemnified party shall be entitled to any
indemnification under this Article 8 (i) to the extent that it actually receives
or is entitled to receive any amount in respect of any loss, liability,
obligation, damage or expense from other sources, including without limitation
insurance or third-party indemnity or (ii) to the extent the matter in question,
taken together with all similar matters, does not exceed the amount of any
reserves with respect to such matters which are reflected in the Financial
Statements;
(viii) A Party shall not be entitled to recover under this
Article 8:
(1) with respect to consequential damages, including
damages for lost profits, or with respect to punitive, exemplary or special
damages;
(2) with respect to any failure of warranty or covenant by
the other Party which is contained herein if at or before the time of Closing,
the Party seeking recovery had actual knowledge of the failure of warranty or
covenant;
(ix) the amount of any recovery pursuant to this Article 8 shall
be net of any foreign (non-U.S.), U.S. federal, U.S. state and/or local Tax
benefits inuring to the indemnified party as a result of the state of facts
which entitled the indemnified party to recover from the indemnifying party
pursuant to Article 8;
(x) no Shareholder shall be liable for indemnification to JAKKS
Pacific with respect to any Material Adverse Effect of JAKKS Pacific which is
indemnifiable hereunder in an amount which exceeds such Shareholder's pro-rata
portion of the aggregate amount of such Claim (such pro rata portion being
computed on the basis of the ratio of the total number of Shares owned by such
Shareholder immediately prior to the Closing to the total number of Shares
outstanding (except that all such computations with respect to David Lipman
and/or Marilyn Lipman shall be made as to the number of Shares owned by them in
the aggregate).
8.5 Provisions Regarding Tax Claims.
(a) Limitations on Tax Claims. No Claim shall be made against the
Shareholders under Section 2.4 or Section 8 or for breach of any of the
representations or warranties to the extent that it relates to any Tax Claim,
Claim for Tax or Tax liability or Tax affairs of any Kidz Biz Company and
40
(i) the matter to which it relates was disclosed in the
Disclosure Schedules; or
(ii) the Tax liability to which it relates was discharged before
Closing; or
(iii) the Tax liability to which it relates is a liability which
is the subject of a reserve or provision in the Financial Statements; or
(iv) the Tax liability to which it relates arises in respect of
any income profits or gains earned accrued or received by any Kidz Biz Company
or in the ordinary course of any such company's business at time on or after
September 30, 2001; or
(v) the Tax liability to which the Claim would relate (but for
this clause 8.5(a)(v) arises as a result of a change after Closing in any
accounting bases or policy used for the purposes of drawing up the accounts of
any Kidz Biz Company or in the application of such bases or policies; or
(vi) the Tax liability to which the Claim would relate (but for
this cause 8.5(a)(vi)) arises or is increased as a result of the loss or
unavailability of any Relief which would (were it not for the said loss) have
been available to any Kidz Biz Company and which is an asset in the Financial
Statements or has been taken into account in computing (and so reducing) any
provision for tax in the Financial Statements and the Relief is lost or is
unavailable as a result of a failure by any Kidz Biz Company to make after
Closing any of the claims or elections in respect of the Relief within the time
limits or as a result of the making of a disclaimer after Closing of a Relief;
or
(vii) the fact, matter or circumstances giving rise to the Claim
has also given rise to a Claim under any other provision of this Agreement and
the sum payable in respect of such equivalent Claim has been recovered; or
(viii) the Tax liability to which the Claim relates comprises of
interest, penalty, surcharge or fines and which has arisen or is increased as a
result of a failure on the part of any Kidz Biz Company or JAKKS Pacific to pay
a Tax liability (the "Underlying Tax Liability") in connection with which any
interest, penalty, surcharge or fine has been made within ten (10) Business Days
of the date on which JAKKS Pacific receives any amount payable by the
Shareholders pursuant to any Claim by JAKKS Pacific against the Shareholders in
respect of the Underlying Tax Liability or where no Claim arises or may be made
against the Shareholders in respect of the Underlying Tax liability, or
(ix) the Claim would (but for this clause 8.5(a)(ix)) relate to:
(1) a primary Tax liability of any Kidz Biz Company or any
Affiliate of JAKKS Pacific which would not have arisen or
would not have been
41
capable of practical enforcement but for JAKKS Pacific or
any Affiliate of JAKKS Pacific having or obtaining a
presence for Tax purposes in any jurisdiction other than
the United Kingdom or Hong Kong or which would not have
arisen but for the Kidz Biz Company joining the same group
as JAKKS Pacific or any Affiliate of JAKKS Pacific as a
consequence of or after Closing; or
(2) a secondary Tax liability of any Kidz Biz Company which
is also a primary Tax liability of JAKKS Pacific or any
Affiliate of JAKKS Pacific; or
(x) it relates to any Tax liability which arises as a result of
any event act or omission by JAKKS Pacific or any Affiliate of JAKKS Pacific
(including any Kidz Biz Company) after Closing, unless such act event or
omission is carried out by JAKKS Pacific or such Affiliate pursuant to an
obligation imposed by statute; or
(xi) it relates to any stamp duty or stamp reserve tax payable
on or in respect of this Agreement or the transfer of the Kidz Biz Shares
pursuant to the Agreement; or
(xii) it relates to any Tax liability which would not have
arisen but for the coming into force of any legislation or the withdrawal or
alteration of any published extra-statutory concession of any Tax Authority
after Closing.
(b) Conduct of Claims for Tax.
(i) JAKKS Pacific shall give notice to the Shareholders of any
Claim for Tax in respect of a Tax liability for which the Shareholders are or
may be liable under this Agreement within ten (10) business days of JAKKS
Pacific or any Kidz Biz Company receiving the Claim for Tax;
(ii) If other Claims for indemnification of JAKKS Pacific under
this Section 8, do not, when taken together with the Claim for Tax, exceed the
limitations set forth in Section 8.4 of this Agreement upon the amount of the
indemnification obligations of the Shareholders to which the Claim for Tax
relates, the relevant Shareholders jointly shall be entitled (and JAKKS Pacific
shall procure that they are so entitled) to resist any such Claim for Tax in the
name of JAKKS Pacific or the relevant Kidz Biz Company as the case may be and to
have made available information and documents of the Kidz Biz Company reasonably
necessary for the purpose of such resistance provided that:
(1) within twenty (20) business days of the service of
notice of the Claim of Tax pursuant to clause 8.5(b)(i) above, JAKKS Pacific and
the relevant Kidz Biz Company is
42
indemnified to its reasonable satisfaction by the relevant Shareholders against
all losses (including additional Tax liability), costs, damages and expenses
which may be incurred in resisting the Claim for Tax provided that where the
Claim for Tax would, in the absence of an appeal being made within applicable
time limits, become final, the relevant Kidz Biz Company shall at the cost and
request of the relevant Shareholders file the appeal whether or not such
indemnity has been provided by the Shareholders; and
(2) the Shareholders have been advised by an independent
tax adviser, acceptable to JAKKS Pacific in its reasonable discretion, after
disclosure of all relevant information and documents, that it is reasonable to
resist the Claim for Tax in the manner proposed by the Shareholders.
(iii) The relevant Kidz Biz Company shall be kept fully informed
of all material matters pertaining to the Claim for Tax and all steps proposed
to be taken by the Shareholders.
(iv) Nothing in this clause shall prevent any Kidz Biz Company
or JAKKS Pacific or any Affiliate of JAKKS Pacific from paying or discharging
the Tax Liability (or any part of it) which is the subject of the Claim for Tax
provided it does so (and JAKKS Pacific shall procure that if any such person
makes or discharges any such liability it does, does so) without admitting
liability for it.
(v) Subject to clauses 8.5(b)(vi) and 8.5(b)(vii), if as a
consequence of any action taken under clause 8.5(b)(1), JAKKS Pacific, any
Affiliate of JAKKS Pacific or any Kidz Biz Company receives any benefit, an
amount equal to the value of the benefit will be payable by JAKKS Pacific to the
Shareholders to the extent it exceeds any other amount due from the Shareholders
to JAKKS Pacific under this Section 8 at the time such benefit is received by
JAKKS Pacific, an Affiliate of JAKKS Pacific or any Kidz Biz Company, and
otherwise the other amounts due from the Shareholders to JAKKS Pacific shall be
reduced by the amount of such benefit.
(vi) For the purposes of clause 8.5(b)(v) the value of the
benefit received will be:
(1) where the benefit is a payment from a Tax authority,
the amount of the payment (including any payment received in respect of costs
and interest supplement);
(2) where the benefit is the reinstatement of a Relief, an
amount equal to the amount paid by the Shareholders in respect of the loss or
set-off of such Relief;
(3) where the benefit is the reinstatement of any shares or
assets (the enforcement or exercise of any mortgage or charge or power of sale
over which gave rise to the
43
Shareholders' liability under this Agreement), an amount equal to the amount
paid by the Shareholders to JAKKS Pacific as a consequence of such enforcement
or exercise;
(4) where the benefit is the grant of a Relief to any Kidz
Biz Company or JAKKS Pacific or any Affiliate of JAKKS Pacific, an amount equal
to the amount of the Relief, unless the Relief on utilization would operate as a
deduction from gross income, profits or gains, in which case an amount equal to
such amount of Tax as the utilization of the Relief saves for the JAKKS Pacific,
an Affiliate of JAKKS Pacific or any Kidz Biz Company.
(vii) The amount payable by JAKKS Pacific to the Shareholders
pursuant to clause 8.5(b)(vi), shall be paid within thirty (30) days of the date
on which the benefit is received. For these purposes the benefit will be deemed
to be received on:
(1) where the benefit is a payment from a Tax authority,
the date of receipt of the payment;
(2) where the benefit is the reinstatement of a Relief, the
date of receipt of written confirmation from the relevant Tax authority of such
reinstatement;
(3) where the benefit is the reinstatement of any shares or
assets (the enforcement or exercise of any mortgage or charge or power of sale
over which gave rise to the Shareholders' liability under this Agreement), the
date of such reinstatement;
(4) where the benefit is the grant of a Relief, the date on
which an actual payment of Tax by the JAKKS Pacific or any Kidz Biz Company or
any Affiliate of JAKKS Pacific is mitigated by the use of such Relief.
8.6 Indemnification Exclusive Remedy. Indemnification pursuant to the
provisions of this Article 8 shall be the exclusive remedy of the Parties for
failure of any warranty or covenant contained herein or in any Acquisition
Document, other than the covenants contained in Sections 7.1 and 7.2. The only
legal action which may be asserted by any Party with respect to any matter which
is the subject of this Article 8 shall be a contract action to enforce, or to
recover damages for breach, of this Article 8. Without limiting the generality
of the preceding sentence, no legal action sounding in tort or strict liability
may be maintained by any Party.
44
9. Miscellaneous.
9.1 Survival of Representations and Warranties. Subject to Section
8.4(viii) the representations and warranties of each Party hereto contained in
this Agreement shall survive the Closing, notwithstanding any investigation or
inquiry made by any other Party hereto.
9.2 Limitation of Authority. Except as expressly provided herein, no
provision hereof shall be deemed to create any partnership, joint venture or
joint enterprise or association among the Parties hereto, or to authorize or to
empower any Party hereto to act on behalf of, obligate or bind any other Party
hereto.
9.3 Fees and Expenses. Each Party hereto shall bear such fees and
expenses as may be incurred by it in connection with this Agreement and the
Acquisition. All the stamp duty to be incurred in connection with this Agreement
and the Acquisition shall be borne by the Purchaser.
9.4 Notices. Any Notice or demand required or permitted to be given or
made hereunder to or upon any Party hereto shall be deemed to have been duly
given or made for all purposes if in writing and (i) if sent by messenger or
Federal Express or internationally recognized courier service, or by priority
overnight delivery between any two points within the U.S. or any two points
within the U.K., on the business day next following the date such Notice or
demand was delivered, or (ii) if sent by priority overnight delivery between any
point within the U.S. and any point outside of the U.S., or between any point
within the U.K. and any point outside of the U.K., or between any two points
outside of the U.S. or the U.K., three (3) business days next following the date
such Notice or demand was delivered; or (iii) if sent by mail, three (3)
business days after deposit in the mails, if mailed by certified or registered
mail (return receipt requested) between any two points within the U.S. or any
two points within the U.K., and seven (7) business days if mailed by certified
or registered mail (return receipt requested) between any point within the U.S.
and any point outside of the U.S., or between any point within the U.K. and any
point outside of the U.K., or between any two points outside of the U.S. or the
U.K., or (iv) if sent by telegram, telecopy (confirmed to the sender), telex or
similar electronic means, the business day next following the date such notice
or demand was so transmitted, provided that a written copy thereof is sent on
the same day by postage-paid first-class mail, to such Party at the following
address:
45
if to JAKKS Pacific: JAKKS Pacific, Inc.
22619 Pacific Coast Highway
Malibu, California 90265
Attn: President
Fax: (310) 317-8527
and to: Feder, Kaszovitz, Isaacson,
Weber, Skala, Bass & Rhine LLP
750 Lexington Avenue
New York, New York 10022-1200 U.S.
Attn: Geoffrey A. Bass, Esq.
Fax: (212) 888-7776
to David Lipman or
Marilyn Lipman at: David S. Lipman
Castilian House
The Ridge
Epsom, Surrey KT18 1BS
United Kingdom
Fax:
to John Nimmo: John Nimmo
Morwell
5 Grays Lane
Ashtead, Surrey KT21 1BS
United Kingdom
Fax:
with a copy to: Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606-7482 U.S.
Attn: Jonathan Baird, Esq
Fax: 312-715-4800
and to: Altheimer & Gray
7 Bishopsgate
London EC2N 3AR
United Kingdom
Fax: 020-7786-0000
Attn: Dean Harper, Esq.
or such other address as any Party hereto may at any time, or from time to time,
direct by Notice given to the other Parties in accordance with this Section.
Except as otherwise expressly provided herein, the date of giving or making of
any such Notice or demand shall be, in the case of clause (a) (i), the date of
the
46
receipt; in the case of clause (a) (ii), three business days after such
Notice or demand is sent; and, in the case of clause (b), the business day next
following the date such Notice or demand is sent.
9.5 Amendment. Except as otherwise expressly provided herein, no
amendment of this Agreement shall be valid or effective, unless in writing and
signed by or on behalf of the Parties hereto.
9.6 Waiver. No course of dealing or omission or delay on the part of
any Party hereto in asserting or exercising any right hereunder shall constitute
or operate as a waiver of any such right. No waiver of any provision hereof
shall be effective, unless in writing and signed by or on behalf of the Party to
be charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.
9.7 Exchange Rate. Whenever any calculation in this Agreement requires
conversion of a currency into or from US$, the average exchange rate published
in the Wall Street Journal, New York, New York, USA as of the five (5) business
days immediately preceding the date that the relevant payment is due, if the
calculation involves a payment, or the date when any other calculation is due to
be made under this Agreement, shall be the exchange rate used in converting such
amount into or from US$.
9.8 Governing Law. This Agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws. For the purpose of
enforcing the provisions of Section 9.9 of this Agreement and any other remedy
available to a Party under this Agreement, each Party to this Agreement submits
to the jurisdiction of the courts of the State of New York, located in New York
County, New York, U.S., and to the jurisdiction of the U.S. District Court for
the Southern District of New York, New York, New York, U.S. with respect to any
matter arising out of this Agreement, waives any objection to venue in the
Counties of New York, State of New York, or such District, and agrees that
service of any summons, complaint, Notice or other process relating to such
Proceeding may be effected in the manner provided by Section 9.4. If service of
process is required to be made within the U.S., the Shareholders appoint as
their agent for service of any process Corporation Service Company, 1177 Avenue
of the Americas, 17th Floor, New York, New York 10036, or such other agent for
service of process, located in the U.S. of which the Agent (or any Shareholder
as to that Shareholder) gives Notice to JAKKS Pacific.
47
9.9 Arbitration. Any dispute or controversy between or among any of the
Parties hereto shall be submitted to arbitration in New York, New York in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association before a panel of three arbitrators. JAKKS Pacific, on
the one hand, and the Shareholders shall each pay one-half of any filing fees or
other administrative costs to be paid in advance of or during such Proceeding.
The arbitrators shall render a reasoned decision with respect to such Proceeding
which shall include, in addition to the imposition of monetary damages or any
other remedy or relief available hereunder, an allocation of the costs thereof.
The decision of the arbitrators shall be final and binding upon the parties to
such Proceeding, and judgment thereon may be entered in any court of competent
jurisdiction. The arbitrators shall have no power to change any of the
provisions of this Agreement in any respect, nor shall they have any power to
make an award of reformation, and the jurisdiction of the arbitrators is
expressly limited accordingly. No Party hereto shall be liable for punitive
damages, unless such Party is found to have committed fraud or willful
malfeasance against another Party hereto. At least one of the arbitrators shall
be an attorney admitted to the practice of law for at least fifteen (15) years
with substantial experience in business and commercial transactions.
9.10 Remedies. Notwithstanding the provisions of Section 9.9, or any
other provision of this Agreement, in the event of any actual or prospective
breach or default by any Party hereto, any other Party hereto shall be entitled
to equitable relief, including remedies in the nature of rescission, injunction
and specific performance. Subject to the provisions of Sections 7.5, and 9.9 and
Article 8, all remedies hereunder are cumulative and not exclusive, and nothing
herein shall be deemed to prohibit or limit any Party from pursuing any other
remedy or relief available at law or in equity for such actual or prospective
breach or default, including the recovery of damages; provided, however, that
the indemnification provisions of Article 8 shall be the sole and exclusive
remedy, as among the Parties hereto, with respect to any Material Adverse Effect
for monetary damages under this Agreement.
9.11 Severability. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the Parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
48
9.12 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute one and
the same agreement.
9.13 Further Assurances. Each Party hereto agrees to cooperate fully
with the other Parties in connection with preparing and filing any Notices or
documents in connection with the Acquisition. Each Party hereto shall promptly
execute, deliver, file or record such agreements, instruments, certificates and
other documents and perform such other and further acts as any other Party
hereto may reasonably request or as may otherwise be reasonably necessary or
proper, to consummate and perfect the Acquisition.
9.14 Binding Effect. Subject to Section 9.15, this Agreement shall be
binding upon and inure to the benefit of the Parties hereto and its successors
and permitted assigns. This Agreement is not intended, and shall not be deemed,
to create or confer any right or interest for the benefit of any Person not a
Party hereto.
9.15 Assignment. This Agreement, and each right, interest and
obligation hereunder, may not be assigned by any Party hereto without the prior
written consent of the other Parties hereto, and any purported assignment
without such consent shall be void and without effect; provided that any
Shareholder may assign its right to receive all or any portion of the Purchase
Price without the consent of any other Party hereto.
9.16 Titles and Captions. The titles and captions of the Articles and
Sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the Parties or modify or otherwise
affect any of the provisions hereof.
9.17 Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
9.18 References. The terms "herein," "hereto," "hereof," "hereby" and
"hereunder," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
49
9.19 No Presumptions. Each Party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of this Agreement.
No Party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that any other Party hereto drafted or
controlled the drafting of this Agreement.
9.20 Exhibits and Schedules. The Exhibits, Schedules and Disclosure
Schedules hereto are an integral part of this Agreement and are incorporated in
their entirety herein by this reference.
9.21 Entire Agreement. This Agreement embodies the entire agreement of
the Parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, commitments or arrangements relating thereto. The Parties make
no representations or warranties to each other, except as contained in this
Agreement, and any and all prior representations and warranties made by any
Party or its representatives, whether orally or in writing, shall be deemed
merged into this Agreement, it being intended that no such prior representations
or warranties shall survive the execution of delivery of this Agreement.
50
IN WITNESS WHEREOF, JAKKS Pacific by its duly authorized officer, and
the Shareholders, have executed this Agreement on the dates set forth below.
JAKKS PACIFIC, INC.
By: /s/ STEPHEN G. BERMAN
-------------------------------
Name: Stephen G. Berman
Title: President and COO
Executed on: December 27, 2001
/s/ DAVID S. LIPMAN
- ---------------------------------
David S. Lipman
Executed on: December 27, 2001
/s/ JOHN NIMMO
- ---------------------------------
John Nimmo
Executed on: December 27, 2001
/s/ MARILYN LIPMAN
- ---------------------------------
Marilyn Lipman
Executed on: December 27, 2001
51
INDEX TO EXHIBITS AND SCHEDULES
Schedule I Shareholders, Etc.
Schedule 1.54 Management Accounts
Schedule 4.11-A Employees of Kidz Biz UK
Schedule 4.11-B Employees of Far East
S 1
Schedule I
SHAREHOLDERS OF KIDZ BIZ LIMITED
Payment Factor as to
Number of Portion of Purchase
Ordinary Shares Price Paid to
Shareholder Owned of Record Kidz Biz Limited
- ----------- ---------------- --------------------
David Lipman 6,250 25%
Castilian House
The Ridge
Epsom, Surrey
United Kingdom
Marilyn Lipman 6,250 25%
Castilian House
The Ridge
Epsom, Surrey
United Kingdom
John Nimmo 12,500 50%
Morwell
5 Grays Lane
Ashtead, Surrey
United Kingdom
S 2
SHAREHOLDERS OF KIDZ BIZ FAR EAST LIMITED
Payment Factor as to
Number of Portion of Purchase
Far East Shares Price Paid to Kidz Biz
Shareholder Owned of Record Far East Limited
- ----------- --------------- ----------------------
David Stuart Lipman 500 50%
Castilian House
The Ridge
Epsom, Surrey
United Kingdom
John Nimmo 500 50%
Morwell
5 Grays Lane
Ashtead, Surrey
United Kingdom
S 3
1. Certain Definitions.........................................................1
1.1 "Pound Sterling"......................................................1
1.2 "Acquisition".........................................................1
1.3 "Acquisition Documents"...............................................1
1.4 "Affiliate"...........................................................1
1.5 "Agent"...............................................................2
1.6 "Agent Agreement".....................................................2
1.7 "Agreement"...........................................................2
1.8 "Assets"..............................................................2
1.9 "Awareness" or "Knowledge"............................................2
1.10 "Blue Sky Laws".......................................................2
1.11 "Business"............................................................2
1.12 "Claim"...............................................................2
1.13 "Claim for Tax".......................................................2
1.14 "Clockhouse Lease"....................................................3
1.15 "Closing".............................................................3
1.16 "Closing Date"........................................................3
1.17 "Closing Purchase Price"..............................................3
1.18 "Commission"..........................................................3
1.19 "Common Stock"........................................................3
1.20 "Consent".............................................................3
1.21 "Contract"............................................................3
1.22 "David Lipman"........................................................3
1.24 "Dividends"...........................................................4
1.25 "Dragon Ball Z Claims"................................................4
1.26 "Earn-Out"............................................................4
1.27 "Earn-Out Payment"....................................................4
1.28 "Earn-Out Payment Date"...............................................4
1.29 "Earn-Out Shares".....................................................4
1.30 "Earn-Out Year".......................................................4
1.31 "Employment Agreement"...............................................4
1.32 "Escrowee"............................................................4
1.33 "Far East Shares".....................................................4
1.34 "`Financial Claim"....................................................5
1.35 "Financial Statements"................................................5
1.36 "Governmental Authority"..............................................5
1.37 "Hazardous Material"..................................................5
1.38 "HK Financial Statements".............................................5
1.39 "Holdback"............................................................5
1.40 "Holdback Claim"......................................................5
1.41 "Holdback Period".....................................................5
1.42 "Hong Kong Lease".....................................................6
1.43 "JAKKS Pacific Shares"................................................6
1.44 "JAKKS Pacific Securities Claims".....................................6
1.45 "John Nimmo"..........................................................6
1.46 "Kidz Biz Accountants"................................................6
1.47 "Kidz Biz Sales" .....................................................6
1.48 "Kidz Biz Shares".....................................................7
S 4
1.49 "Law".................................................................7
1.50 "Lease"...............................................................7
1.51 "License Agreement"...................................................7
1.52 "Lien"................................................................7
1.53 "Limitations".........................................................7
1.54 "Management Accounts".................................................7
1.55 "Marilyn Lipman"......................................................7
1.56 "Material Adverse Effect".............................................7
1.57 "Notice"..............................................................7
1.58 "Order"...............................................................7
1.59 "Ordinary Shares".....................................................7
1.60 "Payment Factor"......................................................8
1.61 "Percentage Y/O/Y Increase"...........................................8
1.62 "Permit"..............................................................8
1.63 "Person"..............................................................8
1.64 "Proceeding"..........................................................8
1.65 "Purchase Price"......................................................8
1.66 "Real Property".......................................................8
1.67 "Registration Rights Agreement".......................................8
1.68 "Securities Act"......................................................8
1.70 "Shareholder".........................................................9
1.71 "Shareholder Securities Claims".......................................9
1.72 "Storage Facility Agreement"..........................................9
1.73 "Tax".................................................................9
1.75 "Tax Claim"...........................................................9
1.76 "Trade Right".........................................................9
1.77 "UK Financial Statements".............................................9
1.78 "U.S."................................................................10
1.79 "US$".................................................................10
2. Purchase of the Kidz Biz Shares.............................................10
2.1 Transfer of Shares....................................................10
2.2 Delivery of Closing Purchase Price....................................10
2.3 Earn-Out..............................................................10
2.4 Holdback..............................................................11
2.6 Effective Date........................................................14
3. The Agent...................................................................14
3.1 Notices to Agent......................................................14
3.2 Directions from Agent.................................................14
3.3 Authority of Agent....................................................15
3.4 Payments to Agent.....................................................15
4. Representations and Warranties of Kidz Biz and the Shareholders.............15
4.1 Kidz Biz UK Existence; Shareholders...................................15
4.2 Far East Existence; Shareholders......................................16
4.3 Power and Authority...................................................16
4.4 Proceedings...........................................................17
4.5 Financial Statements..................................................17
S 5
4.6 Material Adverse Changes..............................................19
4.7 Trade Rights..........................................................19
4.8 Real Property.........................................................19
4.9 Hazardous Material....................................................20
4.10 Tax Returns...........................................................20
4.11 Employees.............................................................21
4.12 Excess Dividends......................................................21
4.13 Affiliates............................................................21
4.14 Brokers...............................................................22
4.15 Investment Representation.............................................22
4.16 Agent's Appointment...................................................22
4.17 Limitation of Warranties..............................................23
5. Representations and Warranties of JAKKS Pacific.............................23
5.1 JAKKS Pacific Good Standing...........................................23
5.2 Power and Authority...................................................23
5.3 JAKKS Pacific Shares..................................................24
5.4 Brokers...............................................................24
5.5 Proceedings...........................................................24
5.6 No Material Adverse Change............................................25
5.7 Eligibility for Form S-3..............................................25
5.8 Limitation of JAKKS Pacific's and JAKKS Pacific's Warranties..........25
6. Closing.....................................................................25
6.1 Concurrent Closing....................................................25
6.2 Deliveries by Shareholders............................................25
6.3 Deliveries by JAKKS Pacific. .........................................27
7. Additional Covenants........................................................27
7.1 Restrictive Covenants.................................................27
7.2 Confidentiality.......................................................28
7.3 Non-Disparagement.....................................................28
7.4 Operation of Kidz Biz Business........................................29
7.5 Resolution of Financial Disputes......................................30
7.6 Tax & Financial Matters; Books and Records............................31
7.7 Employment of Marilyn Lipman and John Nimmo...........................32
8. Indemnification.............................................................33
8.1 Shareholders' Indemnity...............................................33
8.2 JAKKS Pacific's Indemnity.............................................33
8.3 Claims Procedure......................................................35
8.4 Limitations...........................................................36
8.5 Provisions Regarding Tax Claims.......................................38
8.6 Indemnification Exclusive Remedy......................................42
9. Miscellaneous...............................................................42
9.1 Survival of Representations and Warranties............................42
9.2 Limitation of Authority...............................................42
9.3 Fees and Expenses.....................................................43
S 6
9.4 Notices...............................................................43
9.6 Waiver................................................................45
9.7 Exchange Rate.........................................................45
9.8 Governing Law.........................................................45
9.9 Arbitration...........................................................45
9.10 Remedies..............................................................46
9.11 Severability..........................................................46
9.12 Counterparts..........................................................46
9.13 Further Assurances....................................................46
9.14 Binding Effect........................................................47
9.15 Assignment............................................................47
9.16 Titles and Captions...................................................47
9.17 Grammatical Conventions...............................................47
9.18 References............................................................47
9.19 No Presumptions.......................................................47
9.20 Exhibits and Schedules................................................47
9.21 Entire Agreement......................................................48
INDEX TO EXHIBITS AND SCHEDULES.................................................S-1
Shareholders of Kidz Biz Limited................................................S-2
S 7
KIDZ BIZ LIMITED
AND
KIDZ BIZ FAR EAST LIMITED
INDEX OF DISCLOSURE DOCUMENTS
- -----------------------------------------------------------------------------------------------
NO. DESCRIPTION OF DOCUMENT NO. OF PAGES
- -----------------------------------------------------------------------------------------------
1. Printout from Companies House website dated 22 December 2001 of 3
names of various companies.
- -----------------------------------------------------------------------------------------------
2. Company details of Kidz Bizniz Limited. 1
- -----------------------------------------------------------------------------------------------
3. Company details of Kidzbitz Limited. 1
- -----------------------------------------------------------------------------------------------
4. Kidz Biz Limited -- Directors' Report and Financial Statements for 15
the year ended 31 December 2000.
- -----------------------------------------------------------------------------------------------
5. Kidz Biz Far East Limited -- Reports and Accounts for the year ended 19
31 December 2000.
- -----------------------------------------------------------------------------------------------
6. Kidz Biz Limited -- extract of notes to the financial statements for 6
the years ended 31 December 1998, 1999 and 200.
- -----------------------------------------------------------------------------------------------
7. Invoice Discounting Agreement (Recourse) between The Royal Bank of 34
Scotland Commercial Services Limited (1) and Kidz Biz Limited (2).
- -----------------------------------------------------------------------------------------------
8. Guarantee and Indemnity from David Lipman in favour of The Royal 6
Bank of Scotland Commercial Services Limited.
- -----------------------------------------------------------------------------------------------
9. Guarantee and Indemnity from John Nimmo in favour of The Royal Bank 6
of Scotland Commercial Services Limited.
- -----------------------------------------------------------------------------------------------
10. Addendum No. 1 to the Conditions of Purchase of Gemex Trading AG. 2
- -----------------------------------------------------------------------------------------------
11. Fax sent 3 August 2001 to Paul Haycroft incorporating: 5
- Fax dated 13 December 2000 from Gemex Trading Limited;
- Addendum No. 1 to the Conditions of Purchase of Gemex Trading AG;
and
- Directive 1993/44/EC of The European Parliament and of The Council
of 25 May 1999.
- -----------------------------------------------------------------------------------------------
12. Fax dated 20 December 2001 from Louise Hughes (Universal) to David 1
Lipman.
- -----------------------------------------------------------------------------------------------
13. Email dated 24 May 2001 from Louise Hughes to Simon Jones. 1
- -----------------------------------------------------------------------------------------------
14. Teletubbies Standard Merchandising Licence between BBC Worldwide 15
Limited (1) and Kidz Biz Limited (2).
- -----------------------------------------------------------------------------------------------
1
- -----------------------------------------------------------------------------------------------
NO. DESCRIPTION OF DOCUMENT NO. OF PAGES
- -----------------------------------------------------------------------------------------------
15. Invoices dated 18 April 2001 and 1 May 2001 from LEX Vehicle 3
Partners Limited.
- -----------------------------------------------------------------------------------------------
16. BMW Contract Hire Unregulated Quotation dated 24 July 2001 from BMW 1
Financial Services (GB) Limited.
- -----------------------------------------------------------------------------------------------
17. Bank Statements of State Street Bank & Trust Company from January 2
1999 to March 1999 showing the nil balances in the bank accounts
numbers 157900201 and 157900101.
- -----------------------------------------------------------------------------------------------
18. National Westminster Bank plc Corporate Banking Services -- Advice 9
of Borrowing Terms for Kidz Biz Limited dated 6 June 2001.
- -----------------------------------------------------------------------------------------------
19. Tenancy Agreement (undated and unsigned) made between Hornbrook 40
Investment Limited (1) and Kidz Biz Far East Limited (2) in respect
of Rooms Nos. 501A and 508A on the 5th Floor, Empire Centre, No. 68
Mody Road, Kowloon.
- -----------------------------------------------------------------------------------------------
20. Salary List 2000-2001. 2
- -----------------------------------------------------------------------------------------------
21. Email dated 11 December 2001 from Lesley Turnbull to Kidz Biz. 1
- -----------------------------------------------------------------------------------------------
22. Fax dated 12 December 2000 from Claudine Aricique to Simon Jones 11
incorporating AB Toy Distribution Licence Agreement dated 5 December
2000 made between AB Toys (1) an Kidz Biz (2).
- -----------------------------------------------------------------------------------------------
23. Kidz Biz Limited Certificate of Incorporation on Change of Name. 1
- -----------------------------------------------------------------------------------------------
24. Resolutions of the shareholders of Lionway Limited (now Kidz Biz 3
Limited) and the shareholders of Kidz Biz Limited relating to change
of name, increase of authorised share capital and directors'
authority to allot.
- -----------------------------------------------------------------------------------------------
25. Trade Mark Licence dated 19 June 2000 made between United Overseas 13
Limited (1) and Kidz Biz Limited (2).
- -----------------------------------------------------------------------------------------------
26. Letter dated 12 May 2000 from Freetime International Ltd to Kidz Biz 2
Ltd including a Confidentiality Agreement dated 1 May 2000 between
Freetime International (H.K.) Ltd (1) and Kidz Biz Ltd.
- -----------------------------------------------------------------------------------------------
27. Shareholders' Agreement dated 18 September 2000 made between David 2
Lipman (1) and John Nimmo (2).
- -----------------------------------------------------------------------------------------------
28. Management Accounts of Kidz Biz Far East Limited as at 30 September 10
2001 together with Accounts Receivables and Accounts Payables
attached thereto and the Management Accounts of Kidz Biz Limited as
at 30 September 2001.
- -----------------------------------------------------------------------------------------------
29. Reports and Accounts for the year ended 31 December 1997, 31 44
December 1998, and 31 December 1999 of Kidz Biz Far East Limited.
- -----------------------------------------------------------------------------------------------
30. Factoring Agreement commencing on 29 July 1998 signed by The 16
Hongkong and Shanghai Banking Corporation Limited with Kidz Biz
Far East Limited.
- -----------------------------------------------------------------------------------------------
31. Security Over Deposit dated 4 August 1997 created by Kidz Biz Far 2
East Limited in favour of State Street Bank and Trust Company.
- -----------------------------------------------------------------------------------------------
2
- -----------------------------------------------------------------------------------------------
NO. DESCRIPTION OF DOCUMENT NO. OF PAGES
- -----------------------------------------------------------------------------------------------
32. Security Deposit dated 19 January 1999 created by Kidz Biz Far East 2
Limited in favour of The Hongkong and Shanghai Banking Corporation
Limited.
- -----------------------------------------------------------------------------------------------
33. Subordination Agreement dated 5 July 1999. 3
- -----------------------------------------------------------------------------------------------
34. Letter of Banking Facilities granted by The Hongkong and Shanghai 5
Banking Corporation Limited dated 23 November 2001 to Kidz Biz Far
East Limited.
- -----------------------------------------------------------------------------------------------
35. Letter dated 22 October 2001 from Hong Kong Inland Revenue 2
Department to David Ho & Co.
- -----------------------------------------------------------------------------------------------
36. Undated Personal Guarantee given by David Lipman and John Nimmo for 3
HK$15,000,000 in favour of The Hongkong and Shanghai Banking
Corporation Limited.
- -----------------------------------------------------------------------------------------------
37. Companies House Form M395 in respect of the Mortgage granted by Kidz 6
Biz Limited in favour of the National Westminster Bank plc on 18
August 1997 and Companies House Form M395 in respect of the Deed of
rent Deposit granted by Lionway Limited (now Kidz Biz Limited) in
favour of Peel Investments North Limited on 29 January 1997.
- -----------------------------------------------------------------------------------------------
38. Invoice from Worldwide Media Services Limited for GBP89,000 dated 7 2
September 2001 and Hongkong and Shanghai Banking Corporation
Limited Counter Deposit Form for GBP89,000 dated 7 September 2001.
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39. Kidz Biz Companies schedule of dividends post 30 September 2001. 1
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40. Kidz Biz Limited Directors' Report and Financial Statements for the 15
period ended 31 December 1997.
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41. Kidz Biz Limited Nat West Current Account No. 66374707 statement 1
showing entries between 24 December 2001 and 27 December 2001.
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42. Kidz Biz Limited Nat West Deposit Account No. 06171036 statement 1
showing entries between 24 December 2001 and 27 December 2001.
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43. Kidz Biz Limited RBS Invoice discounting account details consisting 6
of a Sales Ledger Report month end statement for December 2001,
Memorandum Discounting Statement month end statement for December
2001 and Payment Availability Report as at 27 December 2001.
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3