OPERATING Agreement
THIS OPERATING AGREEMENT made as of January 6, 2002 (this "Agreement") by
and among TOY SOLDIER, INC., a Delaware corporation ("Buyer"), The Right Start,
Inc., a California corporation ("Parent"), F.A.O. XXXXXXX, a New York
corporation ("FAO"), QUALITY FULFILLMENT SERVICES, INC., a Virginia corporation
("QFS," and together with FAO, "Sellers"), and ROYAL VENDEX KBB N.V., a
Netherlands corporation ("Shareholder"). All capitalized terms contained herein
and not otherwise defined in this Agreement shall have those meanings ascribed
to them in the Purchase Agreement (as defined below).
WHEREAS, The Right Start, Inc., Buyer, Sellers and Shareholder are parties
to that certain asset purchase agreement dated November 19, 2001 (the "Purchase
Agreement"), pursuant to which, among other things, Buyer purchased the Assets
of Sellers upon the terms and subject to the conditions set forth therein; and
WHEREAS, Section 2.6(a) of the Purchase Agreement provides for the
execution and delivery by Sellers, Shareholder and Buyer of an operating
agreement, pursuant to which Buyer shall provide to Sellers operational and
management services for certain of FAO's retail toy stores described in Exhibit
A hereto (the "Operated Stores"); and
WHEREAS, Buyer desires to provide such operational and management services
to Sellers with respect to the Operated Stores and Sellers desire to have such
services provided to ensure the orderly operation of the Operated Stores;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. PROVISION OF SERVICES
1.1 Standard of Operations. Commencing on the date hereof, Buyer shall
manage and operate the Operated Stores in a manner consistent with the standards
of quality with respect to the Transferred Stores and Facilities. Buyer shall
apply substantially the same policies, practices and procedures as apply
generally to the Transferred Stores and Facilities with respect to day-to-day
operations, management, accounting, purchasing, control of operating expenses
and general administration, including marketing, promotional activities and
other matters. Exceptions to general policies, practices and procedures may be
made by Buyer to deal with specific circumstances affecting a particular store
or all of the Operated Stores generally, if, in Buyer's reasonable judgment,
there is an adequate business justification for doing so.
1.2 Enforcement of Rights. During the Term (as defined in Section 8.1) of
this Agreement, Sellers shall, at the request of Buyer and at Buyer's expense,
take such action as may be required by Buyer to enforce Seller's rights under
the real property leases related to the Operated Stores (the "Leases").
1.3 Contracts. Buyer shall have authority to enter into (in Buyer's name,
at Buyer's cost and for Buyer's sole benefit) such purchasing, service and other
contracts or agreements, which are in the ordinary course of business, as are in
Buyer's reasonable professional judgment necessary for the operation, supply and
maintenance of the Operated Stores as required by this Agreement.
1.4 Maintenance. Subject to the limitations set forth herein, Buyer, at its
expense, shall be responsible for maintaining the Operated Stores in good
condition and repair.
1.5 Operating Expenses. Throughout the Term hereof, Buyer shall pay all
operating expenses incurred in connection with the operation of the Operated
Stores contemplated by this Agreement and the Purchase Agreement, including
payments due under the Leases; provided that such Lease payments and other
payments, where appropriate, shall be made in the name of Sellers, but at
Buyer's expense and for Buyer's account.
1.6 Recordkeeping. Buyer agrees to maintain all books of record, accounts
and other financial and operating data with respect to the Operated Stores
during the Term hereof.
2. CONSENTS AND APPROVALS
2.1 Consents and Approvals. Throughout the Term, Sellers shall be obligated
to pursue with due diligence and in good faith (and Shareholder shall cause
Sellers to pursue) the consents and acknowledgements of the landlords to
assignments to Buyer of the Leases. Buyer shall in good faith cooperate with
Sellers as may reasonably be required to obtain such consents and approvals.
Pending the obtaining of such consents and approvals relating to Leases, the
parties hereto shall cooperate with each other in any reasonable and lawful
arrangements designed to provide to Buyer the benefits of use of the Leases for
their respective terms (or any right or benefit arising thereunder, including
the enforcement for the benefit of Buyer of any and all rights of the applicable
Seller against a third party thereunder).
3. PERSONNEL
3.1 Personnel. Pursuant to Section 12.1 of the Purchase Agreement, Buyer
has agreed to offer employment to the employees previously employed by Sellers
in the Operated Stores. Accordingly, subject to the terms of the Purchase
Agreement, Buyer is solely responsible for hiring, supervising, directing the
work of, promoting, discharging and determining the compensation and other
benefits of all personnel working in the Operated Stores. Buyer shall be solely
liable for the wages, salaries, benefits and other compensation of its
personnel, including but not limited to management personnel such as district or
regional managers employed to oversee the Operated Stores.
4. INVENTORIES
4.1 Inventories. Pursuant to the Xxxx of Sale, Buyer has purchased the
Inventories of the Operated Stores from Sellers at original cost and shall at
its sole cost and expense, including distribution expenses, supply such
additional Inventories as are needed for sale at the Operated Stores.
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5. PAYMENT FOR SERVICES
5.1 Payment for Services. In consideration for providing services to
Sellers as required by the terms of this Agreement, Buyer shall be entitled to
retain all revenues generated by the Operated Stores during the Term hereof.
6. LICENSE OF FAO NAMES
6.1 License.
(a) FAO has retained, as of the Closing (and Buyer acknowledges that
FAO possesses), a royalty free, non-transferable, nonexclusive
license, for the duration of the Term hereof and solely in
connection with the operation of the Operated Stores by FAO
pursuant to this Agreement, to use the names "FAO Xxxxxxx" and
"FAO Schweetz," any derivatives thereof, and any trademarks,
service marks or trade names used by FAO in the operation of its
business prior to the Closing (the "FAO Names").
(b) FAO agrees to use the FAO Names in accordance with reasonable
written guidelines delivered by Buyer to FAO and in accordance
with the Xxxxxxx Agreement.
7. DISPOSITION OF OPERATED STORES
7.1 Transferred Store. Promptly following receipt of Consent of a landlord
with respect to any Operated Store, Buyer and the Seller party to the Real
Property Lease for such Operated Store shall execute a Real Property Lease
Assignment with respect to such Operated Store. Upon delivery of an executed
Real Property Lease Assignment with respect to the Lease of an Operated Store,
such Operated Store shall become one of the Transferred Stores and Facilities
under the Purchase Agreement and the parties hereto shall immediately cease to
have the rights, powers and duties set forth in this Agreement with respect to
such Operated Store. The aggregate principal amount of the Subordinated Notes
shall be increased by $1,000 for each Operated Store acquired by Buyer in
accordance with this Section 7.1.
7.2 Closure Store. If no executed Real Property Lease Assignment has been
delivered with respect to an Operated Store at or prior to the termination of
this Agreement, such Operated Store shall become one of the Closure Stores under
the Purchase Agreement, to be operated pursuant to the Transition Services
Agreement, and the parties hereto shall immediately cease to have the rights,
powers and duties set forth in this Agreement with respect to such Operated
Store. All inventories and other Assets attributable to such Operated Store
shall be immediately sold to Sellers at a purchase price equal to the cost of
the inventory therein, at the date of sale, payable by decreasing the aggregate
principal amount of the Subordinated Notes by an amount equal to such purchase
price. Buyer agrees to execute a xxxx of sale and take such other action
reasonably requested by Sellers to effect such sale.
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8. TERMINATION
8.1 Term. This Agreement shall automatically terminate upon the earlier of
(i) sixty (60) days after the Closing Date or (ii) the first day on which all
Operated Stores become Transferred Stores and Facilities pursuant to Section 7.1
hereof (the "Term"). Notwithstanding the immediately preceding sentence, Buyer
and FAO may mutually agree to extend this Agreement with respect to any of the
Operated Stores.
9. WARRANTY, LIABILITY AND INDEMNITY
9.1 No Warranties. Buyer makes no other warranties, express or implied,
with respect to the services to be provided to Sellers hereunder.
9.2 Limitation of Liability. In no event shall Buyer be liable to Sellers
or Shareholder for any consequential, incidental or special damages (but this
Section 9.2 shall not affect Buyer's liability for any ordinary damages)
suffered by Sellers arising out of this Agreement, whether resulting from
negligence of Buyer or otherwise.
10. RELATIONSHIP OF PARTIES
10.1 Independent Contractors. The parties are independent contractors under
this Agreement. Except as expressly set forth herein, neither party has the
authority to, and each party agrees that it shall not, directly or indirectly
contract any obligations of any kind in the name of or chargeable against the
other party without such party's prior written consent.
10.2 No Assignment of Lease. Nothing set forth in this Agreement is
intended to be, or shall be deemed to be, an assignment of any of Seller's
interests in the leases relating to the Operated Stores or a sublease or license
to Buyer to use or occupy such Operated Stores.
11. NOTICES
11.1 Notices. All notices or other communications hereunder shall be deemed
to have been duly given and made if in writing and (a) if served by personal
delivery upon the party for whom it is intended, on the day so delivered; (b) if
mailed by registered or certified mail, return receipt requested, on the third
business day following such mailing; (c) if deposited for delivery by a
reputable courier service, on the business day following deposit with such
courier; or (d) if sent by electronic facsimile transmission, on the day the
facsimile is transmitted electronically, or if not a business day, the next
succeeding business day to the person at the address set forth below, or such
other address as may be designated in writing hereafter, in the same manner, by
such person:
To Sellers or Shareholder:
Royal Vendex KBB X.X.
Xx Xxxxxxx 0, XX-0000
Postbus 7997, 1008 AD
Amsterdam, The Netherlands
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with a mandatory copy to:
Kronish Xxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxxx
Fax no.: (000) 000-0000
E-mail address: xxxxxxxxxx@xxxxxxx.xxx
To Buyer:
Toy Soldier, Inc.
00000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxx/Legal
Fax no.: (000) 000-0000
E-mail address: xxxxxx@xxxxxxxxxx.xxx
xxxxxx@xxxxxxxxxx.xxx
with a mandatory copy to:
Fulbright & Xxxxxxxx L.L.P.
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx Xxx
Fax no.: (000) 000-0000
E-mail address: xxxx@xxxxxxxxx.xxx
12. GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS
12.1 Any Proceeding arising out of or relating to this Agreement
("Proceeding") may be brought in the courts of the State of New York , County of
New York, or, if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of New York, and each of the parties
irrevocably submits to the exclusive jurisdiction of each such court in any such
Proceeding, waives any objection it may now or hereafter have to venue or to
convenience of forum, agrees that all claims in respect of the Proceeding shall
be heard and determined only in any such court and agrees not to bring any
Proceeding arising out of or relating to this Agreement in any other court. The
parties agree that either or both of them may file a copy of this paragraph with
any court as written evidence of the knowing, voluntary and bargained agreement
between the parties irrevocably to waive any objections to venue or to
convenience of forum. Each party hereto agrees that service of process in any
Proceeding may be made upon it in any manner permitted by the laws of the state
of New York or the federal laws of the United States or as follows: (i) by
personal service or (ii) by certified or registered mail to the party for which
intended at its address for notice pursuant to Section 11. Service of process
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upon any party in any manner referred to in the preceding sentence shall be
deemed in every respect effective service of process upon such party.
13. SPECIFIC PERFORMANCE
13.1 Specific Performance. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that, in the event of a breach or threatened breach of this Agreement, the
parties shall be entitled to specific performance, injunctive or other equitable
relief, in addition to any other remedy available at law or in equity, without
posting bond or other undertaking.
14. MISCELLANEOUS
14.1 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be adjusted
rather than voided, if possible, in order to achieve the intent of the parties
to this Agreement to the extent possible, without invalidating or adjusting the
remaining provisions hereof, and any such prohibition, unenforceability or
adjustment in any jurisdiction shall not invalidate, render unenforceable or
adjust such provision in any other jurisdiction.
14.2 Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
14.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement. The exchange of copies of this Agreement and of
signature pages by facsimile transmission shall constitute effective execution
and delivery of this Agreement as to the parties and may be used in lieu of the
original Agreement for all purposes. Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.
14.4 Assignment and Delegation. Neither party to this Agreement may assign
any of its rights or obligations under this Agreement without the prior written
consent of the other party hereto.
14.5 Entire Agreement. This Agreement, including the Schedules, together
with the Purchase Agreement, contains the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
and understandings, oral or written, with respect to such matters.
14.6 Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer
upon any Person other than Sellers, Shareholder or Buyer or their respective
successors or permitted assigns any rights or remedies under or by reason of
this Agreement.
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14.7 Amendment and Waiver. Any provision of this Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the parties hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
14.8 Parent's Obligations. Where in this Agreement provision is made for
any action to be taken or not taken by Buyer, Parent undertakes to cause Buyer
to take or not take such action, as the case may be.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
FAO XXXXXXX
By: /s/ Xxx Xxxxxxx
Title: CEO
QUALITY FULFILLMENT SERVICES, INC.
By: /s/ Xxx Xxxxxxx
Title: CEO
ROYAL VENDEX KBB N.V.
By: /s/ Xxxx Xxxxxxx
Title: Director Corporate Development
TOY SOLDIER, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
Title: Executive Vice President and CFO
THE RIGHT START, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
Title: Executive Vice President and CFO
and Secretary
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EXHIBIT A
List of Operated Stores
1. Store located in the shopping center commonly referred to as The Mall at
Chestnut Hill, located in Newton, Massachusetts, which store is demised
pursuant to the Indenture of Lease by and between WMACH LLC,
successor-in-interest to New England Mutual Insurance Company, as landlord
and FAO Xxxxxxx, as tenant, dated November 29, 1990, as amended.
2. Store located in the shopping center commonly referred to as Water Tower
Place, located at 000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxxxx Xxxxxxxx 00000, which
store is demised pursuant to the Shopping Center Lease between LaSalle
National Trust, N.A., not individually, but as Trustee under Trust
Agreement dated June 10, 1970 known as Trust No. 4940, as landlord
("Landlord") and F.A.O. Xxxxxxx ("FAO"), as tenant, dated July 31, 1996, as
amended together with storage space located in the office section of Water
Tower Place, in Suite ST911W on the 9th floor, which space is demised
pursuant to the Water Tower Place Office Lease between Landlord and FAO
dated May 1, 1997.
